- The Washington Times - Wednesday, July 27, 2005

CityNet Telecommunications Inc., a Silver Spring company that used robots to lay fiber-optic cable, filed for Chapter 7 bankruptcy liquidation last week.

The company was a victim of the telecommunications crash, unable to persuade money-strapped companies to spend on its fiber-optic cables, according to Ed Frantz, the company’s senior vice president and general counsel.

“We found that as many different ways as we tried, the market vanished underneath us,” said Mr. Frantz, who had been with the company about four years.

Founded in 2000, the company used robots to lay the last mile of fiber-optic cable through city sewers and leased the cables to telecommunications companies. That year, CityNet negotiated with the District, but no deal was ever announced.

In late 2001, CityNet laid the cable in Albuquerque, N.M., and later, in Indianapolis. CityNet also completed smaller projects in San Francisco, Los Angeles and Oakland, Calif. The cables have since been sold to local companies.

“In the end, that will be good,” Mr. Franz said. “The companies are well known to the cities, used to working with the cities and other local customers.”

The company’s other assets — the robots, equipment and fiber optics — have been sold to other companies, he said.

In its bankruptcy filings, the company listed nearly $1 million in personal property assets and $1.3 million in liabilities.

CityNet owes $250,000 to Delaware for franchise taxes. That amount could be reduced if the company — which has several subsidiaries based there — files an annual report with the state, said Eileen Simpson, franchise tax administrator.

“Two hundred and fifty thousand dollars is not small potatoes to anyone, not even a state,” Miss Simpson said.

The state received about $508 million from corporations for franchise taxes in fiscal 2004. The company also owes state and local governments in Virginia and Maryland.

The Carlyle Group, a District investing company, invested $29 million in the company in 2001. Spokesman Chris Ullman said the investment fund where the money came from — a $3.9 billion account — posted a 30 percent return that year, so the company doesn’t consider it a loss in the big picture.

“When a small deal like this goes bad, they’re thankfully offset by very large deals in the fund,” Mr. Ullman said.

The company was founded in 2000, shortly before telecommunication companies began to decline in late 2001.

The company’s largest potential customers, Mr. Frantz said, were the certified local exchange carriers (CLECs).

The Telecommunications Act of 1996 allowed the CLECs to compete with existing phone companies, which were monopolies in most cities. But many CLECs folded with the telecommunications crash, Mr. Frantz said.

“Essentially, as good as the product was, the customer base vanished,” he said. “Market forces drove us out of business.”The company’s largest potential customers, Mr. Frantz said, were the certified local exchange carriers (CLECs), competitors to local phone companies.

The Telecommunications Act of 1996 allowed for the smaller companies to compete with existing phone companies, which were monopolies in most cities. But many CLECs folded as part of the telecommunications crash, Mr. Frantz said.

“Essentially, as good as the product was, the customer base vanished,” he said. “Market forces drove us out of business.”

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