360networks puts fibre dream on hold

Only two months after Vancouver-based 360networks Inc. completed a 1,200-kilometre fibre-optic terrestrial route linking Rio de Janeiro, Belo Horizonte and Sao Paulo, Brazil, to its growing network, the company announced it was laying off 800 employees and filing for reorganization.

On June 28, the company, which was building a fibre-optic network that currently connects more than 50 cities in North America, Europe and South America, filed for protection under the Companies’ Creditors Arrangement Act (CCAA) in the Supreme Court of British Columbia, and 360networks (USA) Inc. and 22 of its affiliates filed for protection under Chapter 11 of the US Bankruptcy Code in the US Bankruptcy Court in the Southern District of New York.

According to Mark Quigley, associate director of research at Brockville, Ont.-based The Yankee Group in Canada, 360networks’ major difficulties stem from the poor financial markets. While some of the company’s customers were big carriers, a vast number of their clients were small startup companies.

“A lot of those companies have also suffered under the same kinds of financial woes that 360 has come to grips with recently, in that they went from a situation where market caps were very high…to a situation where their share price was very low and they simply did not have access to the same kind of capital [that they did before],” Quigley said. As a result, many of 360networks’ customers closed up shop and vanished. The demise of these “next-generation carriers” had a detrimental affect on 360networks’ business.

Quigley predicted the company may have to re-evaluate its assets during its reorganization and decide which are necessary to the company’s future and which can be sold off to the highest bidder.

“It’s certainly not going to be an easy process, and the assets that they have installed are ones that will prove attractive. There are a number of companies out there that are interested in increasing their own network capacity,” Quigley said.

According to Lawrence Surtees, senior telecommunications analyst at International Data Corp. (IDC) Canada in Toronto, building a big global network from scratch, as 360networks set out to do, would be a daunting task at the best of financial times.

“It might still be a good idea some day,” Surtees said. “Competition’s a great thing … but they were maybe at the wrong place at the wrong time.” He added that 360networks had committed to spending more than $6 billion this year alone, and now the company has been reduced to basically going door-to-door to raise the capital it needs.

To put it into perspective, Surtees said what 360networks planned to spend this year was equivalent to half of the entire Canadian sector’s spending for the year. Even individual U.S. carriers with tens of millions of subscribers aren’t spending that kind of money, he said.

With both consumer and business Internet use on the rise, the kind of bandwidth 360networks was hoping to provide is still needed, Quigley said. Unfortunately, the company did not have the customer or revenue base in place to sustain it through tough financial times, Surtees said.

“If maybe they’d got a start on this two, maybe three years ago, and started wholesaling capacity and had some cash flow to draw on that would buy them more time or get them over the hurdle,” things might have been different, Surtees said.

Network World Canada

‘s phone calls to 360networks were not returned.

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