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.
