Investors bid to revive Yipes network

The metropolitan network operator finds a quick route out of Chapter 11 bankruptcy: a sale of its assets to investors forming Yipes Enterprise Services.

Beleaguered metropolitan network operator Yipes Communications has found a quick route out of Chapter 11 bankruptcy.

A group of investors formed a company now called Yipes Enterprise Services to buy the assets of the bankrupt metropolitan network operator Tuesday for $20 million, according to a company representative. The sale was approved by a federal bankruptcy court in San Francisco, the company announced on Tuesday.

The new company has also raised $54 million in new venture funding.

Yipes Enterprise Services was formerly known as PHX Holdings, an entity formed to buy the assets of Yipes Communications and form the new company. That group included many original Yipes investors such as Norwest Venture Partners, New Enterprise Associates and J.P. Morgan Partners, who are part of the new investment syndicate.

Yipes Communications filed for a Chapter 11 reorganization in March of this year, but the company continued to operate and retained a large portion of its customer base.

The reorganized company said it had lost 4 percent of its customers during the bankruptcy process, according to new Chief Executive Dennis Muse. The company currently has less than 100 employees, with plans to add 10 to 20 more by the end of year. During its heyday, the San Francisco-based company employed nearly 400 workers.

Yipes was one of several metropolitan network builders started during the Internet and telecommunications boom of the late 1990s that promptly fell on hard times as customers disappeared. Metro network operators represented a once hot niche that fell prey to the same boom-and-bust cycle currently afflicting the entire telecommunications market.

The creation of several metro networking start-ups, funding by venture capitalists flush with cash during the boom, was predicated on the notion that the current networking infrastructure in cities was outdated and too slow to handle the needs of bandwidth-hungry consumers and businesses.

But Yipes, like others, was formed to grow fast, and it quickly succumbed to the downturn.

"Yipes was a business that was funded during the Internet bubble," Muse said. "Its cost structure was beyond its ability to grow revenue."

Competitors, such as start-up Telseon, are grappling with the perception that their businesses are on less-than-stable footing. Telseon filed a lawsuit in May against analyst firm Gartner after that company had said Telseon already filed for Chapter 11 bankruptcy.

Yipes' primary competition will likely come from large Baby Bells such as Verizon Communications and SBC Communications, among others.