Does Pac-West BK Shadow Wholesale Model?

Pac-West Telecom's bankruptcy filing calls into question the wholesale-only model. The company shed its retail CLEC business in March 2005 and had invested in building a platform to provide telephony applications and PSTN gateway services to a range of providers wanting to get into the business by skipping the infrastructure build and expense.

Cablecos, ISPs, former UNE-P CLECs and even companies with fewer ties to the communications industry were among the company's targets. PHONE+ wrote about Pac-West's vision in a story a year ago: Are Designer Phone Companies the Future?

Hank Carabelli, then CEO of Pac-West Telecomm, called the company an enabler for custom phone companies. He said non-telecom businesses could add voice in nontraditional ways. Some examples are voice-enabled supplier extranets or online dating services.

When pressed for customer references, the company was unable to provide them. But the possibilities for a legion of enablers and the implications for the competitive landscape made for interesting reading. One of the company's named accounts is SunRocket, an Internet phone company and a more typical target for Pac-West's platform.

And, to be sure, Pac-West's idea is not unique. Other companies are out there helping nonfacilities-based providers jumpstart their VoIP businesses. We covered a few of them in our story about emerging PSTN gateway services and discussed in an edition of COMPTEL Velocity other attempts to build more comprehensive ecosystems by aggregating services together. i3 Networks, for example, is a company that is bringing all the pieces together for customers.

So what went wrong at Pac-West? I am not privvy to the inside situation, but it didn't happen without warning. In reporting the company's third quarter results, Carabelli admitted the past few quarters were challenging as it tried to balance the declining revenue from mature products with its nationwide network build. He said the company was looking for financing and restructuring alternatives, including seeking court protection from creditors. He indicated a credit facility with Columbia Ventures Corp., secured just days earlier on Nov. 15, was going to fix things.

Less than six months later, CVC is providing Pac-West with up to $18.5 million in debtor.in.possession (DIP) financing, subject to court approval. The DIP financing is expected to provide Pac-West with approximately $6 million of funding to facilitate its reorganization pursuant to the Chapter 11 process.

And, Carabelli is out, replaced by Wallace W. Griffin. A telecom turnaround guy, Michael Katzenstein, a principal of CXO LLC., has been brought in as chief restructuring officer. Plus nearly half -- 48 percent -- of the employees have been let go as a cost-cutting measure.

Griffin said  he expects Pac-West "to emerge financially stable, with a lower cost structure and promising future."

Certainly several telecom companies that have thrown off their debts via Chapter 11 mechanisms have done just that, so it's possible.

It appears there is a need for what Pac-West is selling. A Pac-West exec makes the case for network outsourcing in column, Does Ownership Matter?,  in PHONE+'s sister publication, xchange, which speaks to facilities-based service providers. It's not as if there is a huge stigma about using someone else's network. This is business as usual for most telecom operators somewhere in their networks or at some points in their network buildouts.

In theory, Pac-West's is a good idea; executing on it -- virtually from scratch -- may be another matter.

If you have thoughts about this, I'd be interested to hear them for follow up on a story planned for July. E-mail me at khenderson@vpico.com.