The Biggest Is Not Always The Wrongest 1103

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Let us look at what happened here:

Northpoint provided wholesale DSL services to ISPs.
Like a lot of dot.coms, they thought they had to get big fast, so they spent a ton of money and offered sweetheart deals. They charged too little to even cover the actual costs of running the network, and a lot of ISPs didn’t even pay that.

Northpoint knew they were in trouble and sought a merger with Verizon (an offspring on one of the Baby Bells). Verizon backed off principally when they found that Northpoint wasn’t too truthful about the revenues they were getting (the Securities and Exchange Commission forced Northpoint to be more honest about that, and a quarter of their claimed revenues went out the window).

Northpoint declared bankruptcy late January, and tried to find a new partner to take them over. They couldn’t.

When you go into bankruptcy, there are trustees appointed whose job is to either try to get the business back on its feet again, or at least salvage as much money from the operation as possible to pay off debtors and shareholders.

There were two sets of negotiations going on here. One was with AT&T, one with Northpoint’s ISPs.

AT&T is a retail DSL provider. That means AT&T provides you with the service, and you pay them for it. Northpoint was a wholesale DSL provider. Northpoint didn’t directly provide you with the service, their customers were the ISPs. You didn’t pay Northpoint directly, you paid your ISP.

It’s the difference between your supermarket and the wholesaler who provides food to the supermarket. What does this have to do with AT&T picking up or not picking up customers? AT&T couldn’t pick you up directly as a customer from Northpoint, because you weren’t Northpoint’s customer. You were the ISPs’ customer, and if AT&T had tried, every ISP would have sued the pants off AT&T for stealing their customers, and they would be right and win in court.

Nobody else wanted Northpoint’s operations, for very good reason. If there had been another buyer who was willing to take over the business, Northpoint would have gone to them. If I were in AT&T’s shoes, I wouldn’t have touched them with a ten-foot pole, and here’s why

Imagine two bars in your neighborhood. One charges a quarter a beer, and most of the customers run up big tabs, and pay them months later or not at all. That bar goes bankrupt. If you owned the other bar, and those deadbeats ran over to your bar and insisted on quarter beers and unlimited tabs, what would you say? It’s your bar, customers are going to follow your rules, not the rules that caused your competitor to go bankrupt

You would do that even if you decided to buy the barstools and tables and beer spouts and brought them over to your place. That’s essentially what AT&T did. That’s a lot different than buying the whole bar and running it under different management.

Even when Northpoint was trying to negotiate with the ISPs to stay up long enough to give the ISPs a chance to find new DSL providers, these deadbeats were still trying to milk the dead horse. They offered far less money than it would have actually cost Northpoint to keep the network up. Northpoint would have spent all of its remaining cash just to do that.

But remember, Northpoint couldn’t have decided that even if they wanted to, they’re under the control of bankruptcy trustees, who have a legal obligation to preserve the assets of the company. These trustees would have been in huge legal trouble if they had OK’d something like that. So they didn’t, and I’m sure they told Northpoint to pull the plug when it became obvious the ISPs weren’t going to pay a reasonable amount to keep the system up for a little while.

If AT&T had done nothing, they wouldn’t be getting blamed for this. If they had waited a week or two to buy the building and servers, they wouldn’t be getting blamed for this. Northpoint would have pulled the plug anyway.

AT&T did not pull the plug on anybody. Northpoint pulled the plug because the ISPs wouldn’t pony up enough cash to keep it going for a few more weeks. Blaming AT&T rather than the ISPs is like blaming the guy who buys the bar fixtures for the bar going bankrupt, not the deadbeat customers who didn’t pay their bills.

You may ask, “Why didn’t AT&T buy the bar rather than just the bar fixtures?” The answer is simple; it was a lousy business. You don’t buy lousy businesses and keep running them the same way.

If you ask, “Why didn’t AT&T provide transitional funding?” let me ask you, “Why didn’t the ISPs?” Who was using Northpoint? Not AT&T, the ISPs. Why were the ISPs only offering $3.2 million dollars, when at least $15 million would have been more like it? It’s like insisting that the guy who buys the bar fixtures has to provide quarter beers and unlimited tabs to all the deadbeats for a month, rather than saying the deadbeats should at least pay their tabs and pay at least as much as the beer costs.

If you say, “AT&T should have done this for goodwill,” what about the ISPs? They actually signed a contract with you saying they’d provide the service. Don’t you think they have far more reason to care about the goodwill of their own customers than
AT&T? Why do they get off the hook when it comes to goodwill?

The truth is they didn’t give a damn about you. If they had, they would have ponied up enough cash to keep Northpoint going
for a few weeks. They played chicken with Northpoint over your service, and they lost.

If somebody told you, “I want you to pay $15 million so somebody else can get a free ride” what would you tell them? This is like telling the guy buying the bar fixtures, “If you want the bar fixtures, on top of the fair price for the bar fixtures, you got to pick up some of the unpaid tabs, and keep the deadbeats drinking for a couple more weeks.” Would you do that? If you wouldn’t, then why should AT&T?

If the ISPs had come up with a reasonable amount of money, this would not have happened. They refused, so Northpoint pulled the plug.

Whose fault is that?

I’m not saying you shouldn’t be mad, I’m just saying at whom you should be mad.

If I were you, this is what I would do:

I would write to my ISP. I would ask them if they paid their bills to Northpoint on time, and if they didn’t, why they didn’t care enough about you to do so.

I would ask them if they owe any money to Northpoint, and if they do, why they didn’t care enough about you not to.

I would ask them why they didn’t care enough about you to come up with any contingency plans to shift you over given that they were dealing with a bankrupt company with nobody interested in buying them as a business.

I would ask them why they didn’t care enough about you to notice that Northpoint was running out of money, as put on public record in statements filed with the SEC by the bankruptcy trustees (it took me a whopping ten minutes to find that out).

Then I would wait for, but not expect, an answer.

I wouldn’t blame the guy who bought the barstools.

Email Ed


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