RealTime IT News

NorthPoint Saga Comes To An End

It's official: NorthPoint Communications pulled the plug on its operations by filing for a conversion from Chapter 11 to Chapter 7 bankruptcy protection Wednesday.

But still very much alive is the company's $1 billion lawsuit against Verizon Communications, filed right before its original bankruptcy announcement.

The bankruptcy filing is merely a formality for creditors to pick over the scraps that remain of the former national broadband provider. The company filed for Chapter 11 bankruptcy March 23.

Ostensibly, Chapter 11 bankruptcies are used by companies to get some breathing room with creditors while the organization is restructured. But NorthPoint had already sold off its physical assets to AT&T for $135 million soon after filing for bankruptcy.

The Chapter 7 filing was NorthPoint's way of saying that it can't get any money on the open market for its remaining assets.

AT&T, while interested in the network equipment already deployed at central offices throughout the nation for its own broadband roll out, had no interest in any of the less-tangible assets NorthPoint had to offer.

Officials at the now-defunct data competitive local exchange carrier (DLEC) had hoped to sell off its subscriber base to potential buyers to offset some of the huge losses the company had incurred during its brief lifespan. As is the case when Internet service providers (ISPs) go out of business, many competitors are willing to take over the customer base to boost their own subscriber counts.

AT&T, or anyone else for that matter, didn't want to carry on a business that obviously fared poorly for NorthPoint. With a majority of residential digital subscriber line (DSL) customers, the DLEC was never able to make enough profit to cover expenses.

Well aware of that fact from the beginning, DLECs like NorthPoint, Covad Communications and Rhythms NetConnections Inc., fought for market share, the only way to offset the relatively cheap price for DSL service.

Under perfect conditions, it's a theory that might have worked. But provisioning and support problems with local telephone companies like SBC Communications and Verizon Communcations, who own the network DSL service is run on, cut even deeper into already-slim profit margins.

The end result was financial ruin for NorthPoint. Rivals Covad and Rhythms are alive and operational, but clearly on the ropes, financially, as they try to accrue customers. Either of the two could have bought up NorthPoint's customer base, but are financially unable to make that kind of purchase at this time.

Even though NorthPoint the operational entity might be going the way of the dodo bird, NorthPoint the legal machine is still looking for recompense from a failed merger between itself and Verizon.

NorthPoint executives cried foul and filed a $1 billion lawsuit after the incumbent local exchange carrier (ILEC) nixed a deal that would have brought immediate financial aid to the failing DSL provider.

David Frail, Verizon spokesperson, expects the lawsuit to continue even though he hasn't heard otherwise.

"Legal entities can last a very long time, so the idea that the suit might be continuing shouldn't really be a surprise," Frail said.

As such, he said, Verizon could not comment on the company's shareholder stake in NorthPoint and whether officials expect to get back any of their equity funding.

The lawsuit raises an interesting point: are creditors going to fund the continued legal battle against Verizon? NorthPoint investors, eager to show something (anything) for the whole experience, might not need to be convinced to have lawyers find a way to get some of their money back.

Delisted on Nasdaq weeks after filing for bankruptcy, NorthPoint stock has since been trading on the Over-The-Counter Bulletin Board for five cents a share.

NorthPoint officials were not available for comment on the filing.