Acterna's Extreme Makeover

Acterna's emerging from Chapter 11 and aiming for a market with fewer wrinkles and longer lifelines

October 17, 2003

3 Min Read
Acterna's Extreme Makeover

Acterna Corp. is out of Chapter 11 and ready to recast itself to take advantage of what its execs see as an uptick in the test equipment market (see Acterna Emerges From Chapter 11).

"We've seen some positive developments. The second quarter had significant growth in bookings," says Acterna CEO John Peeler. He believes there are new opportunities for testing and monitoring Sonet/SDH, access, and cable networks worldwide.

The slight industry uptick doesn't mean carriers are back to big spending. Indeed, Peeler emphasizes that the challenges helped solidify a new identity for the company. Instead of just selling test gear, Acterna now sees itself as a kind of test integrator with a focus on fault-oriented operations support systems (OSSs) for major carriers.

Case in point: On Monday, Acterna will announce a contract with Verizon Communications Inc. (NYSE: VZ) to install, develop, and maintain a series of OSSs for the carrier's voice network. While Acterna has sold test hardware to Verizon for a long time, this agreement centers on NetOptimize, a series of OSSs.

The OSS stance has been building for the past five years, Peeler says, since Acterna realized that test software could serve a broader function than driving isolated field and lab equipment. The company worked to port its test kit into hardware and software that would fit within a carrier's OSS setup, monitoring and reporting on faults and conditions and taking automated actions as needed. The goal was to demonstrate that Acterna could help eliminate carrier "truck rolls," or maintenance calls by live -- and expensive -- technicians.

Acterna's focus on OSS was formalized with the creation of its Workflow Solutions group last year (see Acterna Addresses Workflow), and spokespeople say it's panned out in work for Sprint Corp. (NYSE: FON) and British Telecommunications plc (BT) (NYSE: BTY; London: BTA) (see Acterna Wins BT Biz).

Acterna's OSS strategy is not unique. Competitor Spirent plc (NYSE: SPM; London: SPT) says service assurance, including OSS integration, is a huge and growing part of its business. Agilent Technologies Inc. (NYSE: A) also offers OSS services in its roster.

But if the OSS approach is a strong one and has been in the works for five years, why didn't it help keep Acterna out of Chapter 11? Peeler says the company's problems weren't related to its products or marketing capabilities. Rather, it had wound up with massive debt as a result of swallowing a number of acquisitions, including Wandel & Goltermann, Wavetek, TTC, and Applied Digital Access. "When the market melted down, the debt load was too high for the size of the business," he says.

The company filed for bankruptcy protection in May, loaded with over $900 million in long-term debt and $190 million in annual cash interest expense. On Wednesday, it declared its emergence from Chapter 11 with $190 million in long-term debt and an estimated $8 million or less in annual cash interest expense.

Acterna's freedom from bankruptcy came at a cost to its equity holders, who wound up with zilch. The company's also gone private, and its senior secured debt holders now hold 100 percent of the equity. Unsecured creditors are getting about 10 percent of their claims in cash.

There have been other changes, too. Peeler took over as CEO in March 2003, after working for the company in other capacities. The nine-member board was dissolved and replaced with five new members. A subsidiary, Itronix, was sold for $40 million (see Acterna Sells Off Itronix) leaving only one, da Vinci, which specializes in automatic film restoration.

What lies in Acterna's future? A return to the public markets at some point is likely, Peeler says. But having survived its brush with disaster, the company must proceed carefully as it adjusts to a new focus in a still-tentative market. The company faces scrappy competition and ongoing consolidation, despite signs that the worst may be over.

— Mary Jander, Senior Editor, Light Reading

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