Norigen latest CLEC to face the hostilities of a tight financial market

Norigen Communications Inc has shelved plans to replace leased fibre lines with its own wireless network in one of several cost-cutting moves expected at the cash-strapped Toronto-based CLEC. An official at the company confirmed that its plans to build a national network using frequencies in the 24 GHz and 38 GHz bands have been suspended for the time being. The company is saying little about a restructuring plan announced in June following the departures of chair/CEO Saied Nadjafi and president/COO Bill Baines and the subsequent appointment of turnaround specialist Peter Green as interim chair and CEO. At the time, Green said plans were underway to streamline the company, which has struggled with the cost of delivering its multipoint services to small- and medium-sized companies. Johanne Lemay, co-president of Montreal’s Lemay Yates Associates, says it’s not certain that the company will change significantly under the new management. "I think it remains to be seen what the shareholders of Norigen want to do and where they want to go with it," she tells Network Letter. The veil of secrecy surrounding the restructuring shouldn’t be viewed as a negative, says Lemay. The fact that the company is privately owned gives management the control its needs to turn things around quickly. "I think you have much less margin to maneuver if you’re a public company, so I think it does matter quite a bit," she says. "Sometimes the public markets make decisions for you. In this case here I think it can be different. "Obviously the one thing that’s good for them, is on the one hand they don’t have to face this public scrutiny and seeing the value of their stock go down to a few cents just because of the uncertainty. On the other hand they weren’t able to do an IPO to raise additional funds. That’s the negative side of it and their shareholders might decide they don’t see when they could raise additional funds they might decide to have a drastic change in strategy." It is known that Norigen is actively searching across North America for a new chief to replace Green permanently. It is also planning to scale back its operations to concentrate on its core business. Some layoffs have occurred and others are expected to be forthcoming. There are two reasons for the cost cutting, according to a Toronto telecom analyst. "One is to conserve cash, to buy themselves more time; that’s a best case scenario," Lawrence Surtees of IDC Canada tells Network Letter. "The worst case scenario is that things are worse, i.e. if cash flow starts drying up or revenues start drying up, then that would be more problematic. It’s hard to know when they’re not really saying anything about what’s going on." Norigen had earlier given indications that it has enough cash on hand to last until around the end of the year. Like so many in the sector, it has been dependant on a wildly fluctuating marketplace. "The bankers are much more skeptical and cautious about the prospects for smaller and lesser-funded players," says Surtees. "They’re going to look to put their money where there’s big revenue growth or a bunch of cash flow."These kind of business cycles are almost Darwinian," he adds. "It’s how the fields get culled. It can be really harsh in such an environment." Lemay expects that Norigen will follow the example of other CLEC and data providers that are scaling back deployment. The company will likely maximize the revenue it can draw from its existing installations. It will stretch its funding to last as long as possible and become self-sustaining in cash flow. The primary stakeholders in the company include Royal Bank Equity Partners Inc, BancBoston Capital and the Ontario Municipal Employees Retirement System

Norigen latest CLEC to face the hostilities of a tight financial market

News | 07/17/2001 4:00 am EDT

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