NorthPoint Communications

Essay by PaperNerd ContributorUniversity, Master's June 2001

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Michael Malaga; who with five fellow entrepreneurs raised $ 582,000 to form NorthPoint Communications in June 1997. They started with a simple plan to sell high-speed Net access over phone lines (DSL, digital subscriber line) to small businesses in urban areas. NorthPoint aimed to reach 50% of subscribers by leasing lines at 10% of local Telco's' switch sites.

In August 1997 Accel Partners, Benchmark Capital and Greylock put up $ 11 million for 33% in equity. NorthPoint ended 1998 with $ 931,000 in sales, $ 29 million in losses and $ 59 million in debt.

Since the web was on the rise through 1999, NorthPoint eyed a public offering, which Wall Street cared little about profits that could come later. So NorthPoint changed its plan and focused on the metrics that Wall Street craved. Magala raised $ 530 million to build a bigger network and serve both businesses and consumers everywhere.

He began doubling subscribers and revenue, letting losses mount. NorthPoint ended 1999 with $ 21 million in sales, $ 184 million in losses.

NorthPoint paid the Bells $ 18 a month for each line and resold them to Internet service providers for as little as $ 35. The $ 17 left over barely covered network costs which, for the first nine months of 2000, ran $ 700 per subscriber per month. Serving other switch sites costs them over $ 200 Million linking each switch to a node serving multiple Internet service providers a cost of $ 2,000 a month. By March 2000 NorthPoint had 41,300 users, cumulative losses of $ 295 million and $ 488 million in debt.

Magala gave the assignment to NorthPoint President Elizabeth Fetter to look for an exist strategy. By August she had a deal with Verizon but since sales were down 20%, on November 29 Verizon backed out. With no other rescuer found by March 2001 the network went dark. NorthPoint is sold to Michael Armstrong's AT&T for $ 135 million for the wirers and routers, but it ditched 87,000 customers. AT&T only wanted piece parts.

In 46 months of existence it had sales of $ 116 million, losses of $ 700 million and debt of $ 508 million. On its last leg it was still burning $ 66 million a month.

" This would have worked, it just would have taken time." Michael Magala believed if NorthPoint would have stuck to its original strategy of serving businesses in denser markets. It might have made NorthPoint less sexy to The Streets, and the firm would have still been in business.