Going Down With NorthPoint - Company Financial Information

High-speed access is great -- until you lose it. That's what hundreds of thousands of business customers learned last week when NorthPoint Communications' nationwide DSL network went dark, as the dying company cut off service.

NorthPoint has what is known as a wholesale business model, meaning that it does not offer service directly to customers, but instead contracts with partners that handle billing and customer service. This setup made it easier for NorthPoint to concentrate on building its network. But it also put half a million individuals on the hook, unaware they were tied to the Net by a company on the verge of bankruptcy. Late Friday, the California Public Utilities Commission ordered the firm to restore service to some 40,000 California customers, but North Point attorneys said there was little they could do.

NorthPoint was almost certainly doomed since November, when an $800 million investment by Verizon blew up. A month later, at least three potential acquirers were kicking the tires at NorthPoint's Emeryville, Calif., headquarters, sources close to the company say. The firm played hardball, but the suitors played harder, waiting for NorthPoint to go bankrupt. That happened in January, and last week AT&T bought the company at the fire-sale price of $135 million. But AT&T had no interest in keeping NorthPoint's high-cost customers. NorthPoint did not return calls for comment.

Through its search for a buyer, NorthPoint's kept its network running and went to great lengths to keep business partners and customers from abandoning the troubled service. According to a letter dated Feb. 8 obtained by The Standard, even as the company faced dissolution, it threatened to hit partners with a $1,000 fine per DSL if they tried to switch partners.

At the same time, North Point reassured customers that service would not be suddenly killed. But that's just what happened. One victim was Brian McNamara, who does double duty as the IT guy and senior account executive at Hawthorne Associates, an eight-person PR firm in Belmont, Mass., that got service through NorthPoint partner Verio. "I knew NorthPoint was in trouble in January, but I figured Verio would give us some sort of advance warning if the plug was pulled," he says. "This has been a real education for me. We're really in a bind here."

Last Thursday night, Hawthorne was cut off. "We're back to the Stone Age now with our old dialup modems," says McNamara. Racing for a new provider, he's facing at least a month-long wait. "Until then," he adds, "it's like we're using bear skins and stone knives."

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