Norigen’s fall leaves customers in limbo

Analysts were not surprised when Norigen Communications Inc. announced it went into receivership Tuesday, but at least one customer was.

Anne Coulombe of Montreal-based real estate company Gestion Georges Coulombe said Thursday she only learned about the news when contacted by Communications and Networking.

“I’m surprised. I thought everything was fine. They were pretty active,” Coulombe said, and added no one has called to complain about service being cut.

Things seemed fine, in fact, less than a month ago. Coulombe said she had signed a contract with Norigen to provide its OneSource services to one of the company’s buildings. In November 2000 they had entered into an agreement for Norigen to provide communications services to 13 historic properties in Quebec.

“I don’t know if they got as many clients as expected. I know I have a few tenants that took the service. I think they (Norigen) were aggressive about it. They did some promotions,” Coulombe said.

PricewaterhouseCoopers (PwC) has been appointed interim receiver of the competitive local exchange carrier (CLEC). Andy Wilczynski, a senior vice-president of PwC, said it has taken control of Norigen and certain of its subsidiaries, and reduced the number of personnel to essential personnel — enough to temporarily maintain its network.

” We are in the process of notifying the carriers and the customers that we will no longer be responsible for service after Aug. 17. Norigen just did not have any funds to continue a business,” said Wilczynski. “Right now we’re assessing what’s the best course to try and realize on the assets of Norigen.”

A list of creditors has not yet been compiled, nor has a date for a creditors meeting been set. Wilczynski said under an interim receiver’s proceeding there is no requirement to hold a creditors meeting.

Norigen made an ambitous play to break out of the traditional CLEC mold by purchasing the services arm of Compugen Systems Ltd. for a reputed $100 million. At the time, Norigen chairman and CEO Saied Nadjafi said the company expected to achieve annual revenues of $40 to 60 million as a result of the deal. By June, however, both Nadjafi and president Bill Baines had left the company and Patheon Inc. chairman Peter Green took over shortly afterwards.

Analysts said the writing was on the wall for some time.

“Other companies doing what Norigen does have gone out of business already this year. I guess the conventional wisdom was Norigen might be one of the ones that would be next,” said Michael Sone, president of Toronto-based NBI/Michael Sone & Associates.

“One can always think that’s hindsight, but when its founder left and in essence came in with a turnaround specialist obviously everything was not well,” added Gartner Group analyst Elroy Jopling.

Both agree Norigen fell prey to an overcrowded market.

“All these companies, like Norigen, like C1, like Axxent, all had built into their business models that they would be losing money for several years, and of course hoping or depending on the fact that they’d be able to continue to raise enough capital to keep funding that ongoing cash burn until they were finally able to turn a profit. The market being what it is and the lack of access to capital, it was just inevitable,” said Sone.

As for the future of the CLEC market, Jopling said he expects to see the number of players keep dropping until there are only two or three major companies left. While the days for the mid-size player are numbered, there is hope for niche players.

“Within the building local exchange carriers, the few people doing things there — Stream (Intelligent Networks Corp.) and Everest Broadband (Networks Canada), people like Futureway — if these people can maintain a niche, establish themselves, I think it’s an opportunity,” said Jopling.

“But their difficulty is always going to be they are suddenly successful within their own patch and they want to grow a little further, and suddenly you’re up against Ma Bell and Telus and the story changes.”

Toronto’s Harbourfront Centre entered into a 10-year agreement with Norigen for telecommunications services, renaming its outdoor concert venue the Norigen Stage and its phone line the Norigen hotline. A spokesman for the Habourfront said it had only recently learned of the receivership situation and refused to comment.

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