NEON'S LIGHTS

Having energy roots has its benefits, but like most companies, utilities aren't exactly looking for a cash sinkhole. So even with the perks that come with having energy lineage, the utility telcos also must pay back debts and distance themselves from their roots.

For Neon Communications, a regional wholesaler in the northeastern U.S., utility backing was critical in helping the company through its early stages. Northeast Utilities, Consolidated Edison Communications, Energy East and Exelon Capital Partners provided initial seed funding and right-of-ways leverage for Neon when it was founded in 1994. But after that, the separation process began.

Neon started weaning itself from its utility parents early on, said Stephen Courter, chairman and CEO of Neon. “After that, they expected us to survive on our own and pay back the debt,” Courter said. “But the last thing they want is to have a cash drain.” Ideally, the relationship should be more brother-to-brother than parent-to-child, Courter said.

Like a lot of other telecom companies, Neon veered from its original course to circumvent cash constraints. The provider saw the price compression between the Tier 1 cities and adopted a strategy of tapping into the less-equipped Tier 2 and Tier 3 cities. No one put backbones in the smaller towns, Courter said.

But the strategy hasn't paid off quite yet. Despite its regional business plan and energy backing, Neon is in the midst of debt restructuring, though it continues to increase capillarity. Courter believes everything inherently points to deep regional networks and that by sticking to that strategy the company will regain its health.

Ironically, until a couple of years ago, Neon's leadership had a vision of linking with other regional players to create a much larger — even national — network. But like the shift from long-haul capacity to much deeper networks, Neon's direction changed. “My predecessor was facilitating the hook-ups more quickly than the board members cared for,” Courter said. “It may have been the right thing to do at that time, but now it would be a case of ‘Let's all hook up together and get more in debt,’” he said. Neil Flynn, president of FPL FiberNet, agreed with that sentiment, saying he doesn't see regional providers consolidating with each other any time soon.

As for Neon, its current objective is to clean up its books. It then could potentially get picked up by a Bell company in region or out of region, Courter said. In addition, the company may be attractive to an interexchange carrier looking to expand its network, or it could even combine with a CLEC, he said.

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