Ethernet services

Yipes Rides Back With $63.5M

Remember Yipes Enterprise Services Inc.? The Ethernet service provider's back, pursuing enterprise customers with $63.5 million in new funding (see Yipes Pockets $9.5M New Funding). New management, a stripped-down staff, and increased metro presence add to high hopes.

"We're in the right place at the right time," boasts CEO Dennis Muse. "We have a backlog of customers and revenue. Our pipeline has grown significantly." Revenues went up 83 percent between July 2002 and June 2003, Muse says. The company expects to see revenues double between this year and next, and Muse predicts profitability in 2004. Further, there will be even more funding to keep things going: The next round's expected no later than March 2004, Muse says.

Last year, Yipes was piping a different tune. After a four-month stint in Chapter 11, the once-brash startup dipped under the radar (see Yipes Joins Chapter 11 Club and Yipes Reborn – Amid Accusations).

The news raises the question: What's different now? How can Yipes avoid falling prey to the snares that threatened it before -- namely, the high operating costs associated with running fiber-based Ethernet services to enterprise customers?

No problemo, Muse says. Despite the post-bubble market, Yipes has busily expanded its range of available customers. The provider added 90 buildings to its accessibility roster over the last year, and now has 474 buildings connected to its service in New York, Philadelphia, Washington, Chicago, Dallas, Houston, Denver, Seattle, San Francisco, and San Diego.

Plans are underway to more than double Yipes's U.S. presence (up to 24 cities), while including 16 to 18 international locations by the end of 2004, Muse says. Since Yipes is keen on financial services companies, London may be its first international stop, followed by other European bourse locations.

Meanwhile, Muse made good on his promise to cut staff, made after he took the helm from founding CEO Jerry Parrick in March 2002 (see Yipes's Parrick Gets the Boot). Yipes now has 135 employees, down from 375 in its early 2001 heyday. That census will stay through breakeven, Muse asserts.

Promod Haque, managing partner at Norwest Venture Partners, says Chapter 11 helped Yipes get its balance sheet in better shape. Since Yipes started early in the retail Ethernet services market, they signed twenty-year dark fiber contracts at high fixed rates. Competitors were able to take advantage of subsequent rate drops, cutting off Yipes at the knees. Going into receivership fixed that mess. "They cleaned up the cost structure," Haque says.

Still, challenges loom. Since Yipes sells retail Ethernet services to enterprise customers, it still relies on getting access into buildings. According to Vertical Systems Group, lack of fiber access presents the biggest obstacle to Ethernet service growth stateside, despite solid predictions from some analysts (see Access Is Fiber-Starved). Muse admits getting into the right buildings takes time and careful negotiation with realtors and other interested parties.

There have been setbacks, too: While Yipes has increased its access roster this year, it looks as if access agreements with at least two other companies -- e-xpedient/CAVU Inc. and Storm Telecommunications Ltd. (see Yipes Finds E-xpedient Partnership and Yipes Etherizes Europe) -- apparently were derailed before the restructuring.

Competition looms, as well: Cogent Communications Group Inc. (Amex: COI), itself successfully restructured (see Cisco Powers Cogent's Restructuring), has substantially more buildings in its access roster than Yipes does (750 at last count). Cogent unveiled a 10-Mbit/s Ethernet service for ISPs today (see Cogent Offers Cheap Prepaid Service).

Yipes will also need a ton of cash to keep its build-outs going. While the round announced today is the first under the company's new management, Yipes roared through more than $291 million in three rounds between 2001 and 2002 (see Metro Providers Retrench).

At least one analyst predicts that both Yipes and Cogent face ongoing challenges from incumbent LECs and IXCs that want their piece of the Ethernet services pie. "I'm optimistic [about Ethernet services], but not necessarily from those two companies," says Jason Knowles of Current Analysis. Still, if both can hold their own against the likes of each other and incumbents and keep operating costs down, "they should do okay," he says.

— Mary Jander, Senior Editor, Light Reading

RJC 12/4/2012 | 11:25:31 PM
re: Yipes Rides Back With $63.5M Ok, so they were able to renegotiate their dark fiber leases by going into chapter 11. That's great, really.
So what?
Their business model still seems to be 'banking on the next boom' -- build a very expensive network, beyond that which the current market can support, and cash in when the next rise in demand hits.

Ok, so Muse says "We're in the right place at the right time," why is that, exactly? And more to the point, why should we buy it this time 'round?

I've been over the Press Releases section of the Yipes site, but I can't see anything that specifically addresses the root cause of the previous failure.
rjmcmahon 12/4/2012 | 11:25:27 PM
re: Yipes Rides Back With $63.5M I've been over the Press Releases section of the Yipes site, but I can't see anything that specifically addresses the root cause of the previous failure.

I'm not so sure, but I think it was booking sales in advanced and never delivering the goods. This model worked to take cash during an IPO and market mania craze but didn't create real companies with real cash flows.

Somebody, please correct me if this conclusion is a mistake.
American Indian 12/4/2012 | 11:25:23 PM
re: Yipes Rides Back With $63.5M Actions speak louder than words. If Yipes goes back to their past - pricing 60% to 70% below the ILEC -- they will end up in busted again. Cogent is misleading -- more like bait and switch - 10 meg for $1000. That $1000 per month is for Internet Access only - you still need to go buy links or transport from elsewhere. Why is this - because Cogent does not own any facilities. It is a meet me at my port offering - not a network solution.

Our industry needs to wake up and start raising prices. The "price champions" who will not follow, will go out of business -- like Yipes previously did before getting on Chapter 11 Welfare.

Our industry also needs to stop selling to bad customers. Customers buying on one dimension -- price - should be left for those that can only sell on price.
douggreen 12/4/2012 | 11:25:20 PM
re: Yipes Rides Back With $63.5M Booking sales in advance was certainly a problem, but it was a sympton, not a root cause.

The basic issue is getting the services to the customer. How many buildings can be reached (fiber or otherwise)? How many customers will switch from T1 or DSL? How many customers (mostly small businesses) per-building really need more than a T1 or DSL speed?

For example, companies with high bandwidth demands tend to reside in medium sized businesses in business parks, not in high rises served by fiber (e.g. high tech companies with 100-1000 people). The cost of fiber laterals to reach each building is too high to make a business case. The smaller/medium businesses with a floor of a high-rise are often happy with low cost/medium bandwidth services - often bundled with voice from the RBOC.

There are many exeptions to these rules. The problem was that the exceptions were not frequent enough to warrent the network investment.

Investors were willing to pour billions into these companies based on market forecasts for Ethernet services. These forcasts are developed by asking customers "would you buy X if it were available?" Most of them (investors) don't understand he issues dealing with reachability of small customers and fiber lateral builds that are never covered by the forecasts.

The question that was asked is a VERY good one: "What has changed?"
rjmcmahon 12/4/2012 | 11:25:17 PM
re: Yipes Rides Back With $63.5M How many customers will switch from T1 or DSL?

Everybody will.

How many customers (mostly small businesses) per-building really need more than a T1 or DSL speed?

A thing to remember is that needs of others are not defined by our limited perceptions, while the imposition of our perceptions on others will blind us such that we have difficult time understanding their real needs.

Who needs real broadband? A local golf shop had three computers and a shared database. The golf pro figured by himself out how to connect a small LAN using a 100Mbs switch. When asked if he'd like his home computer connected to that LAN, he said he sure would. I'd guess there many more with similar desires.

Are those needs or wants? Who gets to decide?

And on the larger scale. The tammany hall model of the incumbants may support a honest graft machine, but does it provide the foundations of a great society? Does it enable knowledge and communication? Does it create jobs with meaning and purpose? I'll suggest not.

Can we beat this graft machine and replace it with something better? I think we can. It starts with things like structural separation and customer or citizen ownership of the access networks. Don't know if that's in Yipes plans or not.
douggreen 12/4/2012 | 11:25:15 PM
re: Yipes Rides Back With $63.5M RJM,

I agree, of course everyone wants more bandwidth. Of course the golf shop owner would like to connect to his LAN from home. The question is at what price?

Would I take 100M Internet to my house versus 256K? OF COURSE I WOULD. Would I pay $1000 a month for 100M versus $40/month for 256K? No way. Would I pay $20 a month more for 256K than I do for dialup? Oh, wait, yes, I already did. So, certainly people will switch, but at what price? Just look at the low take rates on upgrades from 256K to higher rates on DSL/cable, even if it is only $30-50 more per month. Make it $5-10 and I bet most people would jump.

In the case of the Internet LECs and the buildings that they can actually reach, the problem is not that there is not a market for the service. It is a question of whether or not the price at which they can make a profit is the price at which people will buy it versus lower speed, and lower cost, alternatives.

I understand your arguements on what would be best for society. Some I agree with, some I don't, but I do understand. However, I doubt very seriously that YIPES investors gave them $63.5M to better society.
rjmcmahon 12/4/2012 | 11:25:11 PM
re: Yipes Rides Back With $63.5M The question is at what price?

That's really not the right question. It's around $2K per home passed. Very affordable for many.

The questions are: Who owns it? Should communications access be used to feed a graft machine? How much does the graft cost us every month? Who is improving themselves on such graft payments?

I doubt very seriously that YIPES investors gave them $63.5M to better society.

Misguided, and so-called investors, who don't understand purpose should have their credit cards taken away, by my judgement.

What's the point of so-called capitalism? To take the works and assets of others? I'll suggest it is exactly to build better societies.
yeahsure 12/4/2012 | 11:24:52 PM
re: Yipes Rides Back With $63.5M This news of new funding for Yipes is a little phoney. They didn't actually get a check for new money amounting to anything close to $60 million. That amount recounts $50+ million that was raised but not spent in early 2002 before the Chap 11 and about $9 mil of new money recently from the existing investors to complete. When the lead investors decided to go BK, they quickly withdrew the $60 m previously promised and then (as part of recapitalize plan submitted to the judge at the time of the BK) agreed to invest a similar amount when the company met specific performance hurdles. They missed the original projections to achieve these hurdles in early 2003. We recently hit enough milestones to get about $9 mil of additional funding mostly from existing investors, who view this as "buying insurance" to cover their bets.
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