WorldCom Makes Bid For Rhythms

DSL provider Rhythms NetConnections, in the middle of Chapter 11 bankruptcy proceedings, could have a new lease on life with a reported offer from WorldCom.

by Jim Wagner of internetnews.com [September 26, 2001]

WorldCom (NASDAQ:WCOM) executives confirmed rumors of a partial buyout of Rhythms NetConnections network this week, stating they intend to take $40 million worth of the defunct digital subscriber line (DSL) provider.

The deal is subject to court approval, which has the final say in matters affecting a company currently in bankruptcy proceedings. Rhythms recently filed for Chapter 11 bankruptcy protection.

While WorldCom officials didn't say which portion of the network they were buying up, it's good news for any Rhythms customer in that area. WorldCom has already agreed to take on "debtor-in-possession" responsibility, which means they will finance the continued operations in those cities.

That doesn't mean Rhythms customers have a new home, however.

Select markets
Officials at WorldCom said they are buying Rhythms assets only in areas they already have a DSL presence, and that the purchase only boosts its capability and performance in those cities to support its frame relay and virtual private networking (VPN) services for its business-class DSL customers.

To date, Rhythms creditors have been forced by the Federal Communications Commission to keep the company's service running, in order to ensure a smooth transition for its customers.

On Monday, reports had WorldCom placing un unspecified bid for "significant" portions of the troubled data competitive local exhcange carrier's (DLECs) network.

The provider had originally planned on closing down Sept. 10 but the FCC, after listening to complaints brought up by equipment maker Cisco Systems, Inc., ordered Rhythms to remain open until Monday at midnight. Cisco maintained its operations would have been seriously hindered by the shutdown, since as many as 8,500 of its employees used the Rhythms service.

The arrangement is similar to the AT&T Broadband buy of NorthPoint Communications, which went out of business earlier this year.

NorthPoint, which filed for Chapter 7 bankrupty, closed down its network with little notice to customers, prompting a nationwide outcry of protest. Many in the industry consider the abrupt cessation of services as a contributor in the loss in confidence in the DSL industry.

AT&T Broadband later paid $135 million for NorthPoint assets, which consisted mainly of DSL access multiplexers (DSLAMs) at central offices (COs) nationwide.

But unlike AT&T, which hasn't done anything with the equipment its bought so far, WorldCom intends to immediately put the DSLAMs to good use.

It's good news for Rhythms creditors, who had hoped a similar scenario would occur so they wouldn't be stuck finding individual buyers for its nationwide network of routing equipment.

Rhythms officials were unavailable for comment on the WorldCom buy or how many customers remained on its network.

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