Cannect Communications Inc has become the latest casualty in the high-stakes telecom market, laying off three-quarters of its staff and handing its operations over to a bankruptcy trustee. The Oakville ON-based CLEC went into interim receivership on Feb. 6, with Ernst & Young handling the account. Alex Morrison of E&Y assured Network Letter that all of Cannect’s current customers are continuing to receive service. But the firm has laid off most of the staff, primarily in the sales and marketing division."I think there were roughly 200 employees," Morrison says. "There’s probably in the range of 50 or 60 or so working right now." This is the latest in the consolidation of the CLEC sector. Last summer RSL Communications Ltd put its Canadian operations up for sale (NL, July 31/00). Telecom services provider NetStone Communications divested its telecom division last December and has now re-emerged as PredictiveIT, an outsourcing business. Cannect was founded in March 1998. It targeted small companies, who spend less than $10,000 on local/LD services. It offered service in Vancouver, Calgary, Toronto and Ottawa and planned to roll out in Edmonton and Victoria this year (NL, June 5/00). President/CEO George Horhota said last year that the company was looking at doing business in a different way. Too many companies were forcing smaller customers to adapt to solutions better suited to big corporations. Bundling was a major bugbear for Horhota. "You know what the fundamental problem with telecommunications is?" he asked at the time. "Everybody wants to get the Bell monopoly again. That’s what bundling is. It’s re-monopolizing the business." Cannect’s largest shareholder is Nortel Networks Corp, which has also become one of its largest creditors. The CLEC was rolling out the telecom manufacturer’s Succession solutions. Others holding a stake in the company are Kohlberg, Kravis Roberts & Co, Working Ventures Canadian Fund and various pension and mutual funds. The firm had already put its IPO on hold because of the battering of telecom shares on the stock market. There are reports Cannect had been searching for a merger partner, possibly Axxent Inc.A study done by IDC Canada earlier this year suggests Cannect was one of the smaller firms in trouble (NL, Jan. 15/01). "Diminished profits have prompted share prices to fall in the telecom services sector," analyst Lawrence Surtees writes, "which have hampered new financing efforts by smaller entrants, such as Cannect Communications of Oakville Ont, which has been unable to sell an Initial Public Offering. Faced with a cash crunch, many entrants have been forced to cease spending, layoff staff—or fold operations, such as GST Telecommunications and ICG Communications, raising the spectre of yet another shakeout in 2001." Interim receiver Morrison isn’t sure whether the company will be sold, merged or ground to a halt. "We’ll be looking at all options," he says.