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Is Bankruptcy a Tool for Competitive Advantage?

Is Bankruptcy a Tool for Competitive Advantage?. Janice Aune President and CEO Onvoy Minneapolis, Minnesota. Onvoy: Minnesota’s Integrated Services Provider. 2,000- mile fiber network throughout Minnesota. Long distance choice to rural Minnesota. 4 th largest tandem switch in the U.S.

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Is Bankruptcy a Tool for Competitive Advantage?

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  1. Is Bankruptcy a Tool for Competitive Advantage? Janice Aune President and CEO Onvoy Minneapolis, Minnesota

  2. Onvoy: Minnesota’s Integrated Services Provider • 2,000- mile fiber network throughout Minnesota. • Long distance choice to rural Minnesota. • 4th largest tandem switch in the U.S. • 100,000+ Minnesotans on Onvoy’s voice network. • National Internet access to Minnesota. • We stand behind 70+ rural ILECs connecting them to the world. • Net Income Positive FY02, until WorldCom. • EBITDA positive for more than 18 months straight. • First Minnesota provider to converge multiple services over IP network across the state.

  3. #1. Critical or Administrative? • Prior to bankruptcy filing: • As a provider of essential services, Onvoy cannot execute a normal collections process. • Onvoy has a public and legal responsibility to keep the network running. • Onvoy cannot discontinue a service that affects end users, according to the 1934 Telecom Act. • Once a Chapter 11 filing occurs: • For repayment of pre-petition obligations, Onvoy is not deemed a Critical Vendor. • For post-petition obligations, Onvoy is given Administrative status.

  4. #2. Bankruptcy Disrupts the Telecom Ecosystem • Telecom companies at every level of the “food chain” are interconnected. • When one company fails, the entire system is out of balance. End User Global Carrier Regional Carrier Local Carrier Aggregator

  5. #3. Further Disruption: How much more financial stress can the industry tolerate? • Once companies re-emerge from bankruptcy into the market: • Their debt load has been erased or reduced. • Their relationships with their customers may be unchanged. • They are free to set unprecedented pricing floors. • Their assets are heavily discounted. • Let’s ask: What drove their behavior prior to bankruptcy and what will compel different behavior when they re-emerge? WorldCom Debt: ? McLeod USA Debt: $3Billion x x Global Crossing Debt: ? Covad Debt: $1.4 Billion x x ICG Debt: $2.5 Billion x

  6. Conclusion: Rite of Passage? “In the wake of the tech downturn, filing for chapter-11 protection no longer has the stigma it once did. For companies doing business in the sector, it has become so prevalent it might be considered a rite of passage.” -- Boardwatch, April 2002

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