NorthPoint Files for Bankruptcy

NorthPoint Communications, mortally wounded in the Digital Subscriber Line dustup, became the first major player to crawl under the protective umbrella of Chapter 11 bankruptcy.

Blaming Verizon Communications for placing NorthPoint in a precarious financial position last fall when it pulled out of their merger, NorthPoint Chief Executive Liz Fetter last week said the bankruptcy will provide “breathing room” as the company shops its business and network around.

Unlike Jato Communications, which shut its doors for good Dec. 29 and cut off some subscribers, NorthPoint will continue to provide service to its more than 100,000 customers. NorthPoint has arranged $38 million in debtor-in-possession financing that will cover day-to-day operations until a “structured sale” can be arranged.

Analysts said Rhythms NetConnections, which last week cut loose 450 workers in an attempt to slash costs, is better positioned than NorthPoint or Covad Communications because it has $748 million in cash that should carry it into the first quarter of 2002.

“The market has hammered all of the DSL [Digital Subscriber Line] companies, and its a lot harder to get financing from the public markets or vendor financing,” TeleChoice analyst Eric Rasmussen said. “With the sobering of the market, theyve had to reel in their own expectations.”

Like NorthPoint, Rhythms was carried away in a market that demanded competitive carriers build bigger networks more quickly than their revenue streams could support.

“Market conditions change,” Rhythms spokesman Chris Hardman said. “What the market demanded early on is not what the market demands today. In order to make our business viable, we have to be able to adapt.”

Clay Storer, CEO of DSL reseller Broadband Solutions, has been doing his best to adapt since Jato closed, leaving about 40 percent of his customers temporarily without service. Those customers have since been switched over to Rhythms and Qwest Communications International.

“I really believe this is going to be a benefit for consumers of DSL and providers of DSL in the long run because the riffraff is being shaken out,” Storer said.