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Digital Broadband Fades Away

Light Reading
News Analysis
Light Reading
12/28/2000

Like so many CLEC startups, Digital Broadband Communications, a service provider that mainly sold DSL connections to businesses, expected to bring back a bird from a wild goose chase. But with only 1,000 customers and investors running scared, the company has come up empty handed.

Earlier this month, Digital Broadband laid off 450 of its 526 employees and filed for Chapter 11 bankruptcy protection. On Wednesday, the company posted a note on its Website announcing it will shut off its network on January 12, 2001. "Regrettably, with this date fast approaching, it is in all of our customers' best interest to immediately seek alternate service providers," the note says.

The failure casts more doubt on the telecommunications financing activities of Cisco Systems Inc. (Nasdaq: CSCO), Digital Broadband's largest creditor and exclusive equipment provider.

Cisco has an unliquidated claim estimated at $70 million, according to a Wall Street Journal report citing the bankruptcy filing. Digital Broadband listed assets of $50,000 or less, the report says. (An unliquidated claim is a claim in which the amount of debt can't be precisely calculated, meaning it'll probably be left for the courts to determine.)

Digital Broadband's demise marks the second time in so many months that a service provider backed with Cisco's financing and significant promotion has gone belly-up (see ICG's Dark Cloud and Cisco's Under-Powered Carriers ). Indeed, Digital Broadband called itself a “Cisco-Powered Network,” a moniker it earned by having 100 percent of its equipment provided by Cisco, a Digital Broadband spokesperson confirmed.

Cisco had committed at least $85 million in vendor financing to Digital Broadband, according a report in The Boston Globe. And while it’s not known how much of that committed funding amount Digital Broadband used, Cisco announced in February that Digital Broadband was buying $20 million worth of its ONS 15454 optical transport boxes so Digital Broadband could light fiber it had bought from Bell Atlantic (now Verizon Communications [NYSE: VZ]) (see Digital Broadband Buys Cisco Optical Gear ).

Cisco probably also spent a goodly number of man-hours consulting and lending its technical expertise. According to its in-house publications, Cisco began working with Digital Broadband shortly after the company was founded in March 1999 to help it plan an end-to-end Cisco network. Nevertheless, the company never met Cisco’s criteria for a strategic investment.

Over the course of four funding rounds, Digital Broadband raised around $87.5 million from investors other than Cisco, according to data from Venture Economics. Thomas H. Lee Partners LP led Digital Broadband’s last funding round with a $50 million investment. Other investors in Digital Broadband include BancBoston Ventures, Alta Communications, Prime New Ventures, Cross Atlantic Partners, and Boston University’s Community Technology Fund.

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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