ZipLink Closes Door,
WorldCom Opens It

No-fee ISPs fail to sustain wholesaler dialup provider. Fee-based services forced to eat expense of switching local dial-up numbers or migrating to WorldCom. New wholesaler promises not to sell to free ISPs.

by David Aponovich
of boston.internet.com
[November 17, 2000]

Financially ailing ZipLink, a provider of wholesale Internet connectivity, said Friday it was suspending its operations immediately and was laying off 80 people, substantially all of its workforce.

ZipLink said it will wind down operations with a skeleton staff and will sell off its assets, including its network operations and its lease on 50,000 square feet of office space and a data center, to pay creditors.

There will be no proceeds available for shareholders, the company said. Shares of ZipLink (NASDAQ:ZIPL) have plunged in recent months as the company's financial problems worsened. The stock was trading around 40 cents Friday morning before Nasdaq halted trading just before noon; ZipLink's 52-week high is 23.875.

CEO William DeKay said the company had recent discussions with several potential acquirers but was unable to make a deal to sell the company.

ZipLink buys large chunks of Internet backbone from major telecom providers and resells it mainly to Internet service providers such as NetZero and Microsoft's WebTV Network. But many of its customers are free ISPs supported by advertising and retail partners — a model that's proving difficult to sustain.

CEO William DeKay said among ZipLink's problems was a recent default by customer Spinway.com on a $1 million-plus bill. Spinway arranges Internet access to free ISPs such as Kmart-backed BlueLight.com and food warehouse Costco.

He also cited financial troubles by another free-ISP, 1stUp.com. Its majority owner, CMGI, said this week it would sell or shut down the California-based 1stUp.com, citing continued financial losses.

ZipLink had been expected to make an announcement about its future today. It announced two weeks ago that it had defaulted on a $1.9 million payment to its Internet backbone provider, MCI WorldCom.

The company said at the time said it needed to draw on a line of credit controlled by Co-chairman Henry Zachs, to make partial payment to WorldCom and to meet payroll.

In a follow-up annoncement last Friday, ZipLink said Zachs had authorized the company to draw enough money to keep the company running through today as executives searched for a buyer.

It didn't work out, according to deKay, noting the default of it's second-largest customer and the general uncertainty about free ISPs were factors that worked against a sale. DeKay was hired as CEO last month.

DeKay said Internet service to customers on the East Coast will continue to receive service following an agreement Ziplink has made with ISP WorldNet.

ZipLink lost $6.7 million on revenues of $8.3 million during the third quarter. Through the first nine months of 2000 it lost $18.7 million on revenues of $20.6 million.

Fee-based ISPs that procured wholesale dialup services from the financially defunct company are scrambling to shore up their services. FlexPoP is one of the newest entrants into the wholesale dialup service segment.

Mike Grady, FlexPoP president said the firm is in the final stages of development.

"We intend to provide international wholesale dialup, ISDN, and DSL services to ISPs and Virtual service providers," Grady said. "NO FREE ISP's need apply."

The free ISP, once an ominous threat to the subscriber bases of independent service providers nationwide, has peaked. Not only are no-fee ISPs going down, they are taking down high profile wholesalers with them.

The cycle seems to be complete, having gone nearly full circle. Fee based ISPs pay their bills, for the the most part, which makes they good customers. It's just too bad that ISP's using ZipLink services had to pay the ultimate price for the company's decision to feed a no-fee ISP.

— End

     

Related articles:
	[Nov. 10, 2000]	Facing Shutdown, ZipLink Seeks Buyer
	[Nov. 16, 1999]	Wholesale Dialup: Taking it Global