Yipes files for Chapter 11 protection

Metropolitan Ethernet pioneer Yipes Communications' Chapter 11 filing late last month shouldn't have any immediate impact on customers, because the carrier plans to keep operations running as it tries to straighten out its finances.

But doubts about Yipes' long-term viability could have a ripple effect on other metropolitan Ethernet providers that have thus far survived the overall competitive carrier bloodbath.

Despite Yipes' problems, industry observers say Ethernet will remain an option in the metropolitan-area network (MAN) and long haul.

"Yipes really proved Ethernet is a viable technology outside the LAN, and they forced other carriers into the market," says Jason Knowles, an analyst with Current Analysis. All the regional Bell operating companies now have Ethernet services in place or in the works, in large part because Yipes has made end users aware of Ethernet's potential, Knowles says.

Yipes, which has raised about $191 million in equity and $40 million in debt since starting up about two-and-a-half years ago, filed for bankruptcy protection after failing to raise additional funds.

"This proposed restructuring is unavoidable given the unprecedented pessimism affecting providers of capital to the telecom market," Yipes CEO Jerry Parrick said in a statement.

The company faces a cash squeeze because of fixed infrastructure and real estate agreements that were forged when the telecom market was soaring. Yipes plans to restructure those agreements to better reflect current market conditions and emerge from bankruptcy protection.

The privately held company had given few clues about its financial problems. Earlier this year, the company reported that sales in 2001 grew 64% over the year before and that a study showed its customers were very pleased with their service. The company also has been promoting Yipes World, part of the Gigabit Ethernet Conference in Santa Clara later this month.

Yipes also issued a steady stream of press releases trumpeting customer wins. It landed some large customers, such as the Chicago Stock Exchange, but most clients were small and midsize businesses.

The Chapter 11 filing caught some Yipes customers offguard.

"I didn't have any idea this was coming," says Paul Ladd, MIS director at Suffolk University in Boston.

Ladd isn't worried about his Yipes Internet connection and point-to-point services because the company has assured him there will be no disruptions. He also has a fractional T-3 from Genuity as a backup. Still, Ladd doesn't want to see Yipes disappear."They're by far the cheapest provider around, and I'd like to keep them," he says.

When Ladd went shopping for a point-to-point connection in Boston, he found that Yipes' service gave him three times as much bandwidth as a Verizon transparent LAN connection, at half the price.

In addition to its aggressive pricing, Yipes differs from most providers by giving users an Ethernet hand-off to the MAN or WAN, rather than a traditional telephone company circuit. With this Ethernet connection, users can order Internet or point-to-point access in 1M bit/sec increments up to 10M bit/sec.

Other early entrants to the metropolitan Ethernet market, such as Cogent Communications and Telseon, have long emphasized that while they all use Ethernet in the last mile, their business models are all different. Yipes concentrates on selling interoffice high-bandwidth connections; Cogent sells high-speed Internet access; and Telseon wholesales most of its network capacity to other providers.

Cogent CEO Dave Schaeffer says his company's acquisition of PSINet last week is proof that the company is focused mainly on the Internet-access market.

But Cogent, which became a public company when it acquired broadband provider Allied Riser last year, has also had its share of financial troubles. In the first six months of 2001, the company lost $28 million after taking in a paltry $90,000 in revenue. Telseon is privately held, so its financial situation is unclear to outsiders.