High-speed wireless Internet provider Metricom announced Monday that it had filed for bankruptcy protection from creditors while it reorganizes its $1 billion debt.
If granted protection under Chapter 11 of U.S. bankruptcy laws, it would allow the beleaguered company to continue operations while it negotiates with creditors.
"As a result of the depressed state of the capital markets, we have been unable to raise necessary additional capital," interim CEO Ralph Derrickson said in a prepared statement. "Consequently, management and the board of directors decided this action would be in the best interests of all of Metricom's stakeholders."
As part of the move, Metricom has also appointed Kevin Dowd as chief restructuring officer to "evaluate options for financing the company, as well as other strategic alternatives."
The move was hardly a surprise to analysts who follow the company. In March, Metricom announced that it was suffering a severe cash crunch and would run out of money by August unless additional funds were secured. The company announced a quarterly net loss of $186 million the next month, compared with $32 million the year before.
"We had been expecting this for quite some time given what the capital need was for the company based on their business plan, and given the weak reception in subscriber sales," said Christopher Giordano, an analyst at Merrill Lynch.
While the company is 34 percent owned by telecommunications company WorldCom and 43 percent by Paul Allen's Vulcan Ventures, the bankruptcy filing suggests that neither firm is willing to offer Metricom more money.
According to Giordano, there were reports that Metricom was working closely with Vulcan to draft a new business plan that would have made it tempting for WorldCom to buy the company, but that strategy didn't work.
WorldCom would not comment on whether it has offered any more money to Metricom, while representatives from Vulcan Ventures were unavailable to comment.
San Jose, Calif.-based Metricom offers mobile computer users high-speed wireless Internet connections via a 128Kbps network - more than twice as fast as the fastest dial-up Internet connection. The network, known as Ricochet, was originally slated for deployment in 46 cities. It is currently only available in 13 cities, including San Francisco, New York City and Atlanta.
Analysts cite Ricochet's $75 per month fee for the service's lackluster reception among consumers. Despite a national TV advertising campaign, the company had only managed to sign up a total of 40,900 subscribers as of the end of this year's first quarter.
Moreover, the company has been racked by internal turmoil. Chairman and CEO Timothy Dreisbach resigned in February. A month later, the company's CFO and head of engineering followed suit. On Tuesday, the company said it would be handing out pink slips to 135 employees, or 23 percent of its workforce.
While a Metricom spokeswoman would not detail what specific strategic alternatives are being considered, she would not rule out the possibility of selling parts of its wireless network. Under Chapter 11, a corporation can request court protection as it strives to restructure its debt, as opposed to Chapter 7, which pertains to the liquidation of a company after bankruptcy.
Metricom's shares were up 5 percent to $1.82 on the Nasdaq before trading was halted due to the filing.
