- The Washington Times - Saturday, November 17, 2001

Net2000 Communications Inc. yesterday filed for Chapter 11 bankruptcy protection and agreed to sell its assets.

The decision by Net2000, a Herndon company that became a publicly traded company just last year, effectively puts it out of business and provides another example of the struggle competitive local exchange carriers (CLECs) have had in the contest against the Baby Bells.

Net2000 had a market capitalization of $1.5 billion after its initial public offering (IPO) in March 2000, when its shares traded as high as $40. Its highest close was $37.25, one week after its initial public offering.

The board of directors of Cavalier Telephone Inc., in Richmond, approved a deal to buy Net2000's telecommunications assets for just $25 million, about 2 percent of the assets' value when the company reached its height after the IPO.

"Certainly it's a very depressed price. With a market cap like the one we had [following the IPO], one would have liked to go out a bit differently," said Charlie Thomas, chief executive and co-founder of Net2000.

The Cavalier transaction is expected to be completed by Dec. 31.

Net2000 listed assets of $258.8 million and debts of $170.6 million in its filing with the U.S. Bankruptcy Court in Delaware. Net2000 owes Verizon Communications Inc., its largest unsecured creditor, $5.1 million.

The Nasdaq Composite Index halted trading of Net2000 yesterday at 20 cents, down 97 percent from its high this year of $5.96 a share.

Net2000 also said it agreed to sell its video-teleconferencing unit to Visual Systems Group Inc., in the District, for $3.5 million. That transaction has closed.

The company said lagging demand for its telecommunications services and lower spending by existing customers forced bankruptcy.

"We've all been impacted by what has been a terrible economy," Mr. Thomas said.

Cavalier will inherit Net2000's 3,000 telecommunications services customers, all of whom are medium-sized businesses. Cavalier markets services to small businesses and residential customers.

In addition to lagging demand, CLECs have suffered because investors stopped pouring capital into the companies.

"I don't think anyone realized the scope of the investment these companies needed in order to be competitive," said John Celentano, president of Skyline Marketing Group, an independent telecommunications research firm in Owings Mills, Md.

Net2000 laid off 400 workers in October, when it hired Jefferies & Co. to advise it about strategic and financial alternatives. In September, the company fired 335 workers and closed its Philadelphia sales office. It fired 90 workers in January.

Mr. Thomas said the company's remaining work force of about 250 persons could be hired by Cavalier, though it is not clear whether he or any others will be offered jobs there.

"It's unclear exactly who will be absorbed," he said.

Net2000 said it will receive financing from TD Securities and other banks to fund operations during the bankruptcy proceedings.

"I keep hoping we've reached the bottom," said John Windhausen Jr., president of the Association for Local Telecommunications Services, a District trade group representing CLECs.

Net2000 warned this week it would delay submitting its quarterly report for the period ending Sept. 30, but it did provide some preliminary unaudited data. The company said its losses increased 79 percent from $25.6 million a year ago to $45.7 million. Revenue increased 90 percent from $16.6 million a year ago to $31.5 million.

Net2000 opened for business eight years ago as a re-seller of Bell Atlantic Corp. service.


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