ISPs for Sale

On the same day that EarthLink announced it was acquiring the subscriber base of Log On America, Cogent Communications placed a bid for the U.S. network of bankrupt PSINet.

by Thor Olavsrud of internetnews.com [February 28, 2002]

Log On America Inc. (LOA), a Providence, RI-based provider of business communication technologies, sealed a deal with EarthLink under which the EarthLink will acquire its residential dial-up consumer base.

Also under the deal, EarthLink contracted with LOA to provide ongoing wholesale communications services to support the subscribers.

Exactly how many subscribers the deal will bring under EarthLink's banner is unclear. Like most other carriers, LOA refuses to break down how many subscribers it has in each of its various services, which include business telephone and voicemail systems, dial-up and high-speed Internet access, Website creation and hosting, integrated voice and data services, server collocation, ASP applications, managed service level agreements, and network consultancy, architecture, and implementation (LAN, WAN, VPN).

LOA Chief Executive Officer and Chairman David R. Paolo said Wednesday that LOA's overall subscribers totaled 50,000, though there is no way to tell from that figure how many are dial-up subscribers.

Paolo only said, "It's a significant transaction."

Regardless of the numbers involved, the transaction remains significant, at least for LOA. The company has been hemorrhaging cash, and its market capitalization has shrunk to $943,000 while its stock price has fallen from more than $30 a share in 1999 to the 10 cents a share it was pulling in mid-morning trading Wednesday.

The company was helped along in its downward spiral by a series of class action lawsuits by shareholders, alleging the company had issued materially false and misleading statements to the market by repeatedly issuing statements that indicated the company was on track to achieve the goals of its business plan and that it was successfully growing its service offerings and customer base through its numerous acquisitions.

The suits alleged that the revenues the company was generating from its predominantly consumer-focused customer base were not sufficient to offset the capital costs the company was incurring to build out its network and provision its products, and that its growth-by-acquisition strategy was not successful because it was unable to integrate a number of acquisitions into its existing business. Also, the lawsuits alleged the company was experiencing weakening demand for its products and services, and as a result of all those factors the company would not be profitable in the near-term, if at all.

On February 8, 2002, the company settled the suits in a multi-million dollar deal.

"This transaction brings finality to Log On America's quest to become a complete, full-service provider of business communication technologies," Paolo said. "The addition of EarthLink's wholesale agreement adds to a list of customers such as SAVVIS, where Log On America serves as a niche carriers' carrier. We have put particular focus on our core competency of delivering commercial-grade communications services and that focus is now beginning to show rewards. As one of the few players left in its market, Log On America has demonstrated tremendous resilience and is poised to emerge as a successful competitor in the business communications space."

In a similar announcement, Optical Internet service provider Cogent Communications Group, Inc. agreed to acquire the major U.S. operating assets of bankrupt Internet backbone PSINet, Inc. The acquisition includes portions of PSINet's U.S. customer base and network, certain equipment, and three hosting centers. Terms of the transaction were not initially disclosed.

The agreement is subject to a number of conditions, including approval by the U.S. Bankruptcy Court of certain bidding and auction procedures, and approval of the sale itself.

In June of 2001, claiming total liabilities of $4.3 billion, PSINet, which had been on an aggressive four year acquisition binge, filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York. Included in the filing were 24 PSINet operating subsidiaries in the U.S.

Since filing for bankruptcy protection, PSINet has sold operations in Japan, Canada, and South America.

The Washington, D.C.-based Cogent focuses on delivering high speed Internet access and transport services to businesses in the multi-tenant marketplace and to service providers located in major metropolitan areas across the United States.

Cogent's network consists of a dedicated nationwide multiple OC-192 fiber backbone, multiple intra-city OC-48 fiber rings, and optically-interfaced high-speed routers. The company is currently servicing 20 metropolitan markets.

— End