Down the drain: Will other Texas businesses pay for Twister's tumble?

Once a grand vision of comprehensive communications services, Twister Communications now resembles something that has been caught in the eye of the storm.

Forced to close its doors in mid-May, the Conroe, Texas-based company may have been caught up in its own wind tunnel - swept away by images of greatness before it could firmly ground itself in the industry, said a former employee.

"There's a small, medium and a large [in business]," said Dale Armet, Twister's former director of wireless communications. "If you miss any of those steps, you don't have the opportunity to pivot properly. We overextended ourselves, and the people with money, who said they would invest, backed out at the last minute. Unfortunately, people like myself are out looking for work."

Despite a last-ditch, two-week effort to turn things around - during which the company hired a new CEO and a chief operating officer - Twister's fate was in the hands of WorldCom, the company's main provider of Internet and long-distance service, Armet said.

"MCI WorldCom pulled the plug. We accrued an amount of money that we owed them and were unable to meet that [payback] deadline," he said.

Prohibited from comment per contractual agreements, a WorldCom spokeswoman would reveal only that Twister was a wholesale service customer.

Twister's swift descent leaves almost 200 employees out of work - the company had 185 employees as of last October - and thousands of customers seeking new Internet and long-distance providers (Telephony, Oct. 18, 1999, page 32).

Twister served 39 LATAs when it shut down - more than 20% of the way into its plan to offer service in 192 LATAs, Armet said. "I know we had 20,000 Internet and long-distance customers," he said.

Likely the hardest hit were customers in Twisters' original test network, which incorporated Austin, College Station, Conroe, Houston and San Antonio, Texas. Customers in that area received voice and data services and, more recently, video.

Twister also sold 20 million minutes per month via prepaid calling cards, Armet said.

"All those people are screwed," he said. "We didn't have time to send out notices or anything."

Instead, disrupted customers calling Twister's service number were greeted with a message informing them that services had been discontinued, and they should find another ISP and long-distance company, Armet said. On Friday, Twister's main number told callers that the company was "currently experiencing technical difficulties."

"There's probably going to be some legislation passed because of the way we had to discontinue operations," Armet said.

Even before Twister's downfall, Texas was considering legislation regarding phone card registration, said Howard Segermark, executive director of the International Telecard Association. Since the company's demise, the legislature added a bonding requirement for consideration, which would force companies that want to sell prepaid phone cards in Texas to post a bond, Segermark said.

The ITA endorsed the original legislation, he said, but perceives the added bond requirement as "over regulation" - a swift reaction by officials who "want to look like they're doing something."

"It imposes costs on the entire industry that fly-by-nighters are not going to pay attention to," Segermark said. "Something like this gives a black eye to the entire industry and reduces people's confidence in phone cards in general."

That's not to imply that Twister was a "fly-by-night" company, Segermark added. "That's for the courts to decide, if there was fraud involved. Some people are undercapitalized, some companies lack business acumen and some are ethically challenged. It's very difficult to tell the difference."

As he tends to his wounds - frustrated about not being informed until the very end - Armet maintains that Twister's was "a perfect plan that just didn't get financing."

The company simply needed to bulletproof its product in its own backyard before attempting to expand, Armet said. In the end, Twister was paying for points of presence that weren't even being used, he added.

"It'll go down as one of the better start-up companies," he said. "It's just a typical over-extension and an owner that just didn't plan out well enough or listened to the wrong people. It's nothing we couldn't have recovered from, if the investors had come in as they said they would."