No financing sinks Riptide

Richmond Hill, Ont.-based Riptide Communications Inc. last month filed for bankruptcy, closing its doors for good.

The company, which touted itself as Canada’s first national broadband access company, targeted Internet service providers (ISPs), application service providers (ASPs) and carriers, offering wholesale access services based on DSL technology. It had even announced just last August that its subsidiary, Riptide Networks Inc., had completed the CLEC registration process.

According to Mark Quigley, associate director of research at The Yankee Group in Canada in Brockville, Ont., the news about Riptide’s demise was a surprise.

“I had spoken with a couple of the folks at Riptide in the not-so-distant past, and everyone seemed very upbeat, and not a glum thought among them,” he related. “Maybe I was talking to the wrong people.”

Quigley said it seemed as if the company knew where it was going and what it wanted to do, and had a good view of market success.

But what it came down to, according to Riptide’s former president and CEO Phil Bates, was a couple of issues.

“One (issue) is very aggressive pricing on the part of Bell, for its high-speed Internet [business] solutions,” he said.

Riptide was unique in its approach in that it did not target consumers or businesses, but ISPs who would resell those services. That, Quigley said, put it in direct competition with companies like Bell.

“And indeed if Bell Canada, who is going to be the largest wholesaler of this stuff, is your main competition, and they embark on a course of being very aggressive on pricing, typically you have no choice but to follow,” he said. “Your margins are going to be tighter, your investment community is going to have a little less patience, and your pocketbooks won’t be as deep as a Bell, for example, to get you through everything.”

Bates said that a second issue involved the financial markets, which he claimed are “just being quite unkind to the entire telecom sector, and in particular DSL players and Internet players. And we were both.”

While out attempting to get second round financing, Bates said he found the market was simply not a conducive environment for raising money right now.

“If you follow the industry, in the States for example, even the U.S. wholesale players…have shifted lately to include a retail offering – I don’t mean residential, but I mean direct to the business user,” he explained. “And we had shifted in that direction as well in the last couple of months.”

He explained that Riptide had begun to offer high-speed Internet services to businesses directly, but in spite of that change, it was still very difficult to raise the necessary financing.

Quigley agreed that the past few months have been difficult ones. Internet stocks have suffered greatly, and high tech start-up stocks haven’t fared too well.

“I think there’s just a hesitancy out there on behalf of the investment community to keep investing that money if they don’t think they’re going to see the returns,” he explained.

In the past six to nine months, Internet stocks in particular have been hit, he said. It’s had a flow-through effect to many smaller companies involved “in the high tech game. Particularly in the Canadian context, and particularly a company that was seen, I think, as largely concentrating on the Toronto market in the short term.”

He noted that he had thought there was the definite possibility for success for Riptide and its endeavours. Unfortunately in this type of situation, he said companies that don’t have the required investment backing from the start are likely not going to survive.

“Certainly in the ISP game, we’ve seen tremendous consolidation in the industry, and it continues to happen,” Quigley said.

As for Bates, he said all employees have been terminated as a result of the recent news, but he is confident they will all find great positions in the industry, and said that some of them already have.

“Starting a company is a tricky business at the best of times,” he said. “Clearly, one goes out to build a successful company, and we had certainly headed down that path, and we had done a lot of great things. We had built up a super, super team of people, really the best of the best from the industry. We had all of that going for us, but the financial markets moved against us. It’s just bad timing.”