Network Infrastructure Company Difficulties Still Not Over

Joe St Sauver, Ph.D.
Director, User Services and Network Applications
joe@oregon.uoregon.edu

As we first mentioned in the Fall 2001 issue of Computing News, and as we've continued to report since then, major Internet infrastructure companies continue to struggle financially.

Because of the crucial role some of these companies play, and because of the duration and magnitude of the financial difficulties some of these companies have been in, we believe it is important for you to be aware of what's been happening in the telecom industry. You may have read or seen a great deal about what's been going on with WorldCom, for example, but financial issues really aren't limited to just that one telecom firm.

Aside from WorldCom, at the time this was written on July 3 the following telecommunication companies were already in--or appeared to be headed for--increasingly precarious financial straits:

• KPNQwest, operator of the largest and fastest fiber optic backbone network in Europe, filed for bankruptcy, and its Ebone network ceased operations during the first week of July.
  
• ITC DeltaCom, a regional telecommunications provider, announced it was filing for Chapter 11 on June 26.
  
• Digex, a major web hosting company, was down to $0.17/share on July 3 from a 52-week high of $12.25/share. On June 27, Digex announced it was cutting seven percent of its overall workforce (86 positions) to reduce expenses.
  
• Equinix, operator of numerous major carrier-neutral network interconnection and colocation facilities, was down to $0.344/share on July 3 from a 52-week high of $3.53/share.
  
• RCN, a broadband provider operating in major U.S. markets including Boston, NYC, Philadelphia, Washington DC, Chicago, San Francisco, Los Angeles and elsewhere, applied on June 5 to move its stock from the NASDAQ to the NASDAQ SmallCap Market. On July 3, RCN was trading at $1.16/share.
  
• Allegiance Telecom, which recently purchased some WorldCom assets, was down to $1.20/share on July 3, from a 52-week high of $15.80.
  
• Time Warner Telecom, which had acquired basically all the assets of GST (another major facilities-based fiber optic carrier which had gone bankrupt somewhat earlier) was down to $1.32/share on July 3 from $33.80/share earlier in the year.
  
• Cogent Communications, an ethernet-based Internet service provider offering very competitively priced network services at speeds ranging from 100Mbps to 1 Gbps in the so-called "NFL cities," was down to $1.40/share on July 3. Cogent had just acquired Allied Riser Communications last January.
  
• Qwest: During the last few months Qwest has had some tumultuous days, including a single day when its stock lost 57% of its market value. Shares are currently trading at only $1.72/share, and Moody's is reviewing $26 billion worth of Qwest debt for possible downgrade. In other Qwest news, CEO Joe Nacchio, stepped down in June, and Qwest workers are taking unpaid leave over the summer in an effort to cut costs.
  
• Genuity: A traditional top Internet backbone provider whose portfolio includes what was really the first Internet network (BBNPlanet), Genuity was off 31.74% on July 2, and was trading at $1.979/share on July 3, down from a 52-week high of $61.40. The firm had executed a reverse 20-to-1 split of the company's common stock on May 30.
  
• Level3: A major national backbone provider considered on a par with WorldCom and Sprint with respect to its importance as an Internet backbone, LVLT was trading at only $2.57/share at the close of business on July 3.
  
• Colt Telecom, a leading European telecommunications provider with 1,892 route miles of fiber optic network and over 880,000 square feet of hosting space, was down to $2.80/share on July 3, from a 52-week high of $29.06/share.
  

The evolution of operations in these and other telecommunication companies may directly affect how the Internet works for you as an end user, although in many cases the physical assets of financially struggling firms will ultimately be acquired and operated by another provider. We urge you to remain alert, but calm, as the telecommunication market finds a new and more stable financial level.

Disclaimer: The above market note should not be considered investment advice. If you're considering buying or selling any financial instrument, we urge you to seek qualified investment advice before proceeding.

References

http://biz.yahoo.com/djus/020627/200206271017000449_1.html
"Digex Announces Workforce Reduction"

http://biz.yahoo.com/rc/020628/telecoms_allegiancetelecom_fitch_1.html
"Fitch cuts Allegiance Telecom"

http://www.theregister.co.uk/content/7/25539.html
"KPNQwest files for bankruptcy"

http://news.com.com/2100-1033-941416.html?tag=cd_mh
"KPNQwest begins network shutdown"

http://biz.yahoo.com/rc/020530/telecoms_kpnqwest_chronology_1.html
"Meteoric rise and spectacular collapse of KPNQwest"

http://biz.yahoo.com/rf/020703/telecoms_qwest_moodys_1.html
"Moody's may cut Qwest Communication rating"

http://biz.yahoo.com/rb/020628/telecoms_qwest_employees_2.html
"Qwest Asks Workers to Take Unpaid Leave"

http://biz.yahoo.com/djus/020627/200206270017000007_2.html
"Qwest Shares Fell 57.3% Wednesday"

http://biz.yahoo.com/rc/020703/telecoms_allegiance_research1_1.html
"UBS cuts ratings or targets of phone cos."