Pathway buys back Axxent’s Internet assets

It’s not your classic business story.

Boy builds company. Boy sells company. Company goes bankrupt. Boy buys company back for a song. Boy looks to sell company again.

Pathway Communications Inc. Wednesday said it bought the Internet-related assets of Axxent Inc. on Wednesday. It originally sold its Internet business in July 1999.

Pathway founder and president Ashok Kalle said the Toronto-based company has bought all the dial-up, hosting and high-speed assets for a fraction of what they were sold for and are now operating them. Thousands of Axxent’s former customer have also made the switch.

“We have about 18,000 dial-up customers, several hundred ISDN clients, we’re launching a DSL offering, we’ve got several thousand hosted customers, and we have about $5 million to $6 million in terms of physical assets,” Kalle said.

Pathway hasn’t picked an opportune moment to get back into the Internet service provider market, according to two analysts.

“It’s a tough slog being an independent ISP,” according to Ian Angus of Ajax, Ont.-based Angus Telemanagement Group.

Elroy Joplin, an analyst with Canadian arm of Gartner Group Inc. agreed. “The ISP market is simply a market that is contracting in the number of players and that will continue for the foreseeable future,” says Jopling.

While market conditions aren’t ideal, there are opportunities, Kalle said.

“I didn’t buy this back to become a dial-up ISP,” he said. “The retail DSL space in my view is under-serviced. There’s a massive amount of demand out there, especially amongst small and mid-sized businesses.”

The problem for small and mid-size companies, according to Kalle, is that their only options for Internet access are dedicated access and dial-up, and dial-up doesn’t cut it. This has opened up the DSL market. He said Bell dominates this space at the moment, but described the space is having trouble keeping up with the demand.

This isn’t the only market Pathway has its eye on. Kalle said widespread wireless Internet access is around the corner. Both Rogers and Microcell are rolling out general packet radio service networks, or 2.5 G, across Canada, he said, and the price for wireless devices is dropping.

“We feel we are going to be ideally positioned to launch wireless services–wireless Internet and wireless Internet applications — to handheld devices because the economies of scale are such that is you want to start off as a wireless ISP or a wireless ASP you need about 70 per cent of the same network infrastructure that a regular wireline ISP requires,” said Kalle.

“There will be many wireless ISPs and wireless ASPs cropping up, but we believe that there’s an opportunity to get in early, establish market presence, create a good brand proposition, and then wait for consolidation and we get snapped up again.”

Jopling said there is no stigma attached to buying from a financially-troubled company.

“It’s like any acquisition, you always have to do due diligence, but in the last little while there’s been a number of players who have used that route quite a bit,” he said. “If you look at Telus it really kick started a lot of what it does in the ISP space with the acquisition of (the Canadian portion of) PSINet.”

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Jim Love, Chief Content Officer, IT World Canada

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