Yet another US carrier has been forced to file for bankruptcy protection, casting major doubts on its European expansion plans.
Metromedia Fibre Network and most of its US units filed for Chapter 11 protection yesterday, saying that the company had over-extended itself with its network build out.
The company has fibre-optic metropolitan networks in 51 cities in North America and 11 cities in Europe, and has plans to build four more in Europe.
Metromedia said it would make significant cost reductions while it was in bankruptcy protection. These would be achieved by cutting jobs, shedding unprofitable parts of the business and changing vendor contracts.
No details have yet been given of planned asset sales or the number of jobs expected to go. But some analysts have speculated that the European networks, some data centres or some US metro networks could all be considered for sale.
Trouble at Metromedia could spell trouble for many other networking companies across the US, according to analysts.
"I am sure Metromedia will come back from Chapter 11, but if they didn't it would have a domino effect on the networking food chain," said Jay Pultz, research director at Gartner.
Metromedia resells its network capacity to a host of other service providers including long-distance, wireless and Ethernet networking companies.
Evidence that the company was struggling had been clear for some time. In early April, the company announced that key customer and financial backer Verizon and its Genuity Solutions business were cancelling leased network agreements before the natural end of their contracts.
Metromedia has also previously admitted it defaulted on $675m in debt.
Now the company has said it expects to stabilise its financial status quickly and that it will continue to operate without interruption. But analysts maintain that its service will be hit.
"I have no doubt they will keep operating, but operations will certainly be affected," said Jason Knowles at Current Analysis.
Although analysts rejected ideas that Metromedia could be acquired as it is, they said there was likely to be some interest from a number of bidders should it be liquidated.
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