BellSouth has notified the North Carolina Utilities Commission of its intent to pull the plug on Broadslate Networks, a Virginia-based Internet service provider that uses BellSouth’s network to access customers effective Feb. 25.

Broadslate, which provides high-speed Internet access and long-distance telephone service to 325 North Carolina business customers, has until Feb. 25 to pay off the $1.2 million it owes BellSouth for accessing its network.

The problem is that Broadslate has run out of money.

Broadslate began notifying all of its 2,500 business customers earlier this month that financial difficulties were forcing it to shut down, and that the sale of customer accounts to other ISPs was commencing.

Conn.-based, a provider of broadband Internet access, and Raleigh-based Z-Wave, a high-speed wireless Internet service provider, quickly snatched up about 200 of Broadslate’s business customers in Asheville, Charlotte and the Triangle.

The plan was to move Broadslate’s customers to their new ISPs on March 15, but if BellSouth proceeds with its plan to cut off Broadslate on Feb. 25 those customers will be left without an Internet service provider for the time being.

Robert Gillam, the NCUC lawyer who is working on the case, tells LocalTechWire that to his knowledge the situation is unprecedented in North Carolina.

“I don’t know of a situation like this with BellSouth (and a wholesale customer) that has reached the point where it needed to be brought to the attention of the commission,” Gillam says.

Broadslate President Earle MacKenzie declined to return repeated telephone inquiries regarding the future of his company’s customers. BellSouth declined to comment on whether it would force the issue come Feb. 25.

Public Staff agrees with BellSouth

On Feb. 14, with the attention of the telecom world focused on BellSouth’s application with the Federal Communications Commission to begin offering long-distance service in Georgia and Louisiana, the North Carolina Public Staff, which represents consumers in cases before the NCUC, ruled in favor of BellSouth’s intent to boot Broadslate off its network for failure to pay its bills.

The letter recommends that the NCUC should encourage BellSouth to voluntarily continue granting Broadslate access to its network through March 15, and that the Atlanta-based Baby Bell should help Broadslate’s customers find another service provider.

BellSouth spokesman Clifton Metcalf says that his company is doing everything within reason to help customers of ISPs and telecoms that are going out of business to find a new service provider. “We will continue to help whenever we can,” Metcalf says.

But BellSouth is also a huge player in the high-speed Internet market. The company is pushing ahead with its goal of signing up more than 1 million DSL customers by the end of this year. As of Jan. 3, BellSouth says that it has more than 620,000 DSL customers in 63 markets across the Southeast.

The company is the dominant local telephone service provider throughout a nine-state region and has more than 600,000 access lines in the Triangle alone. BellSouth’s next largest local competitor is Verizon South at 460,000 access lines. The smallest CLEC operating in the Triangle is Teligent with about 2,000 access lines.

Drought-like conditions for telecom capital

Many of Broadslate’s peers in the telecommunications retail service market went belly up during the last year. Many so-called CLECs, or competitive local exchange carriers, planned to fund the build-out of their own networks through VC investments, such as Cary-based Access Point and Greenville-based New South Communications, so that they would not have to continue paying BellSouth for supplying wholesale services.

But investors turned their backs on the telecom industry. Venture capital investments across North Carolina fell from $65 million during fourth quarter 2000 to just $1.5 million in fourth quarter 2001, according to Venture Economics. And the resulting capital drought forced many CLECs to curtail their expansion plans and retrench.

Broadslate, founded in 1988, landed more than $60 million in private equity financing last summer, giving the company $95 million in committed equity, plus $100 million in debt financing, to fund its business operations from investors that included Columbia Capital, JP Morgan Partners, Charles River Ventures, and Bessemer Venture Partners.

But in December, Broadslate started closing down its sales centers and laid off 150 of its 200-person staff, maintaining a skeleton crew until the company’s assets could be sold. Published reports in December showed one company official stating that even though Broadslate’s coffers were lined with investor cash, the economic fallout from Sept. 11 resulted in stagnant revenues and that sales numbers and projections would not be met.

Apparently, Broadslate was popular with its service customers. Internet message boards dedicated to the company are full of glowing testimonials regarding Broadslate’s quality of service. But many were shocked to receive notification from Broadslate that the company was shutting down.