Ethernet services provider Yipes raises more funds in comeback bid

By Bob Brown, The Edge
September 16, 2003 04:18 PM ET

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Yipes Enterprise Services, which this week announced a fresh infusion of venture capital, is an Ethernet service provider looking to make the most of a second chance.

The original Yipes was a poster child for the telecom meltdown, burning through about $300 million in funding between its founding in 1999 and its Chapter 11 bankruptcy filing in March 2002.

The new Yipes, which announced its rebirth last July, added $9.5 million in funding this week to complete a first-round investment totaling $63.5 million. Investors include Nor-west Venture Partners and Sprout Group/CSFB.

Don't forget the Bells
Some Bells argue that they are more successful and innovative when it comes to Ethernet services than the specialists like Yipes.

Yipes re-emerged last year when a group initially calling itself PHX Communications - PHX, as in a phoenix rising from the ashes - acquired the network operations and assets of the old Yipes for pennies on the dollar under approval of the U.S. bankruptcy court in San Francisco.

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Like its earlier incarnation, the new Yipes offers scalable (1M bit/sec to 1G bit/sec) Ethernet services via metropolitan and long-haul connections. The bulk of the privately held company’s undisclosed revenue comes from its Internet-access offering, although its fastest-growing service is a city-to-city connectivity service. The San Francisco carrier now zeroes in on 10 markets, including New York, Philadelphia and San Francisco, after selling off its networks in Boston, Pittsburgh and South Florida. Its new funding is dedicated exclusively toward these 10 markets, where Yipes plans to become cash-flow-positive by next June.

Yipes aims to raise a second round of financing between December and March. On the technology front, the carrier is testing 10G bit/sec Ethernet and is interested in layering new applications, such as voice over IP, on its network. While focused on 10 markets now, Yipes officials are eyeing 34 key U.S. markets, plus a handful in Canada and Europe.

Company executives say things will be different for Yipes this time around for several reasons. For one, the company renegotiated its contracts with suppliers — contracts that initially were written during the height of the Internet bubble, says CEO Dennis Muse, a 25-year telecom industry veteran who has worked for WorldCom and MFS.

“The restructuring enables the business to have its costs in line with today’s economy, not with the old economy,” says Muse, whose team is a mix of new and original Yipes employees, including the company’s original network architect.

Yipes also is only extending its network — currently at 21,000 fiber route miles — where it has contracts to cover the costs. That differs from the original Yipes, which operated in a period during which it was fashionable to build out networks as fast as possible and hope the business would follow.

Despite a more modest approach, Yipes still can offer the sort of “disruptive” pricing that originally captured customers’ attention, Muse says. Yipes charges on a megabit basis, touting that its customers can buy a 100M bit/sec pipe between buildings in a metropolitan area for the same it would cost for a DS-3 (45M bit/sec) link from another provider. Yipes says it serves 90 more buildings now than a year ago, bringing total buildings served to 474.