Norigen collapse continues CLEC carnage

With financial markets still unfavourable and financiers still clinging tightly to their wallets, another Canadian company has boarded the sinking CLEC ship.

On August 7, PriceWaterhouseCoopers Inc. (PWC) was appointed interim receiver of Norigen Communications Inc. by the Ontario courts. The day prior to that, the directors of Norigen had resigned and the company had no cash to operate, according to Toronto-based PWC Senior Vice-President Andy Wilczynski.

Headquartered in Toronto, Norigen offered its One Source portfolio of telecommunications services to customers in Toronto, Montreal, Calgary, Ottawa, Vancouver, Edmonton and Hamilton, Ont. This offering enabled customers to create their own bundles of services. PWC will now be looking for parties to buy some or all of Norigen. The infrastructure is still in place, and Norigen has access nodes in approximately 300 buildings, according to Wilczynski.

“We will approach carriers and anybody else who is interested in becoming a telecom company or is diversifying their interests in the telephone world. That may be…Internet service providers, for example, (who) may have an interest. Norigen also holds some spectrum licenses, and we’ll be looking for buyers to acquire those.”

The market has not been favourable to companies such as Norigen. With the recent failings of fellow CLECs, including C1 Communications, Axxent Corp. and Cannect Communications, it was no surprise that another CLEC would follow suit. But in the case of Norigen, other factors could also have been contributors to its demise.

“Some of the numbers that appear to be coming out would kind of give two pictures – one which is definitely resulting from financial markets simply not being willing to support a company like this any longer for continued financing,” noted Mark Quigley, research director at Brockville, Ont.-based The Yankee Group In Canada. “But I’ve seen some figures, in the paper for example, that suggest that their customer count perhaps was not very high, which kind of impacts that financial end even further.” Firms looking for financing have to show potential investors that their past efforts have “yielded fruit,” in order to get that money, he said.

Quigley added that Norigen had always been tight-lipped about releasing any kind of figures, but it appears as if it was not having a tremendous amount of success as a CLEC in selling local telephony services, making things even more difficult.

As well, given the market conditions over the last six to eight months, it is likely that a lot of customers were beginning to run to companies they knew to be stable, he said, which probably impacted Norigen’s future as it went out to try to land new customers.

“I don’t think you’re going to find anybody that’s going to tell you that Bell is going to go bankrupt next week, or AT&T. So I think those kinds of things probably had a snowball effect,” Quigley said. Viability of a telecom provider is something that is on the minds of customers, he added.

Another factor to take into consideration is the cost

of business, pointed out Lawrence Surtees, a Toronto-based senior telecommunications analyst at IDC Canada. He cited three challenges the company had to face.

“Not quite a year ago, they did raise $122 million in private placement…but for a company that is rolling out as a national provider, $122 million doesn’t get you much,” he began.

Secondly, unlike other CLECs, Norigen was billing itself as the “One Source provider” for small- and medium-sized businesses. The challenge there, Surtees said, was that the company was looking to offer everything: local, long distance, wireless and Internet all in one. That meant the costs that the company incurred due to fees it had to pay were much greater than if it were to just hitch up to local networks.

“And third…to target the small- and medium-sized business markets is sort of schizoid. It’s a great opportunity, it’s a market that often feels, or has often felt, neglected by big incumbent carriers and is looking for new stuff, better relationships and all that good stuff,” Surtees said. “But at the same time, the volume – there’s almost a million of those firms in Canada. It’s a huge, costly slog going after those kinds of firms.”

Even with what seems to be the majority of CLECs sinking, competition will not disappear entirely, Quigley said. A market does not require a dozen players to ensure there is a competitive market. All that is needed is a choice for customers when it comes to providers, and that those providers are offering the potential for cost-savings and the addition of new services.

“And I think that is something the Canadian marketplace has certainly engendered and…I don’t think will be impeded by the fact that the population of CLECs has decreased,” Quigley stressed. “If anything, I would suggest that competition is going to continue to march on.”

There have also been many questions of late concerning the potential of foreign ownership regulations, and how more lax rules could translate into more money for companies like Norigen. But Quigley pointed out that this is something that could really only happen in better times.

“The reality is that other countries are facing their own telecom problems, and their focus has to remain on themselves – at least for now.”