Albert, Weiland & Golden, a small Costa Mesa (Calif.) law firm, recently stumbled into a lucrative new niche: telecom bankruptcies. With the communications industry in disarray, the 34-person firm has been busier than ever, juggling 20 major Chapter 11 reorganizations involving tens of millions of dollars owed by outfits such as NorthPoint Communications Group (NPNTQ), Star Telecommunications (STRX), and Pacific Gateway Exchange (PGEXE). But in April, work at Albert Weiland suddenly slowed to a crawl. Why? Its own Internet service unexpectedly died.
It turns out that Albert Weiland's Internet service provider, which the firm declined to name, contracted with another company for high-speed lines. When that broadband provider went bust, so did the law firm's DSL connection. For nearly a month, lawyers had no e-mail, instead relying on faxes, snail-mail, and delivery services--which meant plenty of stressful delays. The irony, says partner Evan D. Smiley, was rich. "I never thought it would happen to us," he says.
The odds are increasing that it will happen to lots of people. So far this year, at least 20 major providers of digital subscriber lines (DSLs) have shut down, filed for bankruptcy, or found themselves bleeding dangerous amounts of cash. NorthPoint, based in Emeryville, Calif., once one of the industry's top players with more than 100,000 customers nationwide, closed in March. Soon afterward, Winstar Communications (WCII) and Teligent (TGNT) went into Chapter 11. And Covad Communications Group (COVD), while vowing to stay open, conceded on May 24 that its future is in doubt.
Dozens of small, regional outfits have flamed out altogether. The result: Some 75,000 small businesses have been plagued with annoying, and often costly, service disruptions, according to AMI-Partners, a New York market research firm. And the situation promises to get worse before it gets better as even more telecoms stumble, says AMI's Greg Zissu.
Part of the problem is that very few DSL providers actually own the lines that carry the superfast connection. Instead, most are resellers for other DSL providers. Dozens of providers, for example, sold high-speed access through NorthPoint's network. "Everybody is part of some telecom food chain, and if any part of that chain tanks, you're out of luck," says Keith Wechsler, owner of Wechtech Inc., a technology consulting firm in Fort Lauderdale, Fla.
"NO ONE TOLD US." Just ask James R. Adox, a partner at EDF Ventures, a venture-capital firm in Ann Arbor, Mich. One morning in April, Adox arrived at the office to find the company's nine employees complaining that they had no Internet access or e-mail. Adox called his provider, XO Communications Inc. (XOXO), and learned that the company contracted with NorthPoint to provide DSL service. "No one told us about the NorthPoint connection before this disaster," says Adox. XO spokeswoman Nancy Gofus says it's true that service contracts do not spell out the complicated relationship between providers--and until now, it hasn't mattered. "We've never had anything like this happen before," she says.
EDF, left without a high-speed connection for nearly a month, made do with a slow dial-up modem. Sending or receiving attachments was nearly impossible. Worse, incoming e-mail was frequently bounced back as undeliverable--and the communications failure resulted in canceled meetings with potential clients. "Being on the Net is our lifeline," says Adox. "And we were dead in the water."
HOME REMEDIES. Faced with similar problems, Donald E. Martelli took matters into his own hands. An associate at Boston public-relations firm Morrissey & Co., he learned in January that his high-speed Web service, HarvardNet, was bailing out of the business, and that a replacement wouldn't be available for weeks. So Martelli, a 27-year-old former construction worker, reached for his power drill. He hastily strung a single phone line through the office's walls and across the floor. Using splitters, he managed to link each of the company's 14 computers to the line, which led to a dial-up modem. Of course, only one employee at a time could use it, severely limiting Web access at the research-intensive outfit. "It was a joke," says Martelli.
Martelli's sense of humor was tested again after he lined up a new provider, Digital Broadband Communications Inc., only to see it go bust before service could be installed. That left Morrissey & Co. stuck with Martelli's cumbersome setup for six weeks, until it opted for T1 line service, at double the cost of DSL. Martelli doubts his problems are over. "I don't think we're out of the woods," he says. "But if I have to go through this again, I'm declaring war." Telecom companies beware: This man is armed with a drill. By Joan Raymond