NorthPoint hit by ISP troubles

NorthPoint Communications today became the latest digital subscriber line (DSL) wholesaler to be blind-sided by the financial weakness of Internet service providers.

The company--which is in the process of combining its operations with the DSL business of Verizon Communications-revised previously announced third quarter results “upon learning about the deterioration in financial resources of certain customers.” Northpoint said three customers representing 26.700 installed lines-about 30% of NorthPoint’s total installed lines as of September 30-were delinquent on payments.

One of these consumer-focused, privately held ISPs is Flashcom, according to NorthPoint’s 10Q report filed with the Securities and Exchange Commission.

To make sure that end users still receive service, NorthPoint is arranging for the direct transfer of lines serviced by delinquent ISPs to other “well-financed, publicly traded” network service providers. It is also considering prohibiting the delinquent ISPs from adding new end users, requiring prepayments for new services and sending notices of termination of service.

As a result of NorthPoint’s decision not to recognize revenue from sales to these customers, revenue for the third quarter was reduced to $24 million compared to the $30 million reported on October 26. NorthPoint will recognize additional revenues from these customers only when all previous account receivables have been paid and cash is received for new services, the company said.

NorthPoint also recognized increased bad debt and other operating expenses related to these network service providers, increasing the company’s cashflow loss for the third quarter to $90.9 million, compared to the $79.2 million originally reported.

A NorthPoint spokesman said that at a future date the company would be updating its guidance for the fourth quarter.

On August 8, NorthPoint announced an agreement with Verizon to combine their industry-leading DSL businesses. The combined operations are expected to serve more than 600,000 DSL subscribers and will pass approximately 63 million potential subscribers in 163 MSAs by the end of 2000. “These recent events confirm the validity of our decision to find a strategic partner like Verizon with a vigorous consumer channel,” said a statement by NorthPoint Communications President and CEO Liz Fetter.