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LOUIS HAUA layoff of 150 workers follows departures of three officers and notice of a possible Nasdaq delisting.
TAMPA - Z-Tel Technologies Inc. has been through some heady highs and gut-wrenching lows during its six-year history. But the past week has been perhaps its most difficult yet.
On Aug. 25, the Tampa telephone company announced the sudden resignation of chairman, chief executive and co-founder Gregg Smith and chief technology officer Charles McDonough. Last week also saw the departure of senior vice president Bryan Bunting, who oversaw Z-Tel's data network systems.
On Monday, Nasdaq notified the company that its battered stock is subject to delisting on Sept. 9 after failing to maintain the minimum required $35-million market capitalization, though an appeal is under way. And on Wednesday, Z-Tel laid off 150 employees, the latest in a series of painful staff reductions aimed at helping get the company's financial house in order.
"We're reassessing everything that we do in the business," acting chief executive Trey Davis said Wednesday.
The 37-year-old Davis is now at the helm of the company, along with senior Z-Tel executive Frank Grillo. Immediately after Smith's resignation, the company's board appointed Davis acting CEO and Grillo, 39, acting chief operating officer. Davis also remains chief financial officer.
In a joint interview Wednesday at the company's Harbour Island headquarters, Davis and Grillo said they were excited by the opportunity to grow the company's new Internet phone business. But they also acknowledged the unique challenge of replacing Smith, the company's chief strategist since its inception.
"There's a lot of affection here for Gregg," Grillo said. "He was the founder of this company, it's here because of his vision. . . . There's a delicacy to moving forward without him and having to get the place going but also wanting to respect the fact that, hey, he's the reason we're here. Managing through that transition is one of the challenges."
Davis noted that Smith is still one of Z-Tel's largest shareholders and may remain so for the foreseeable future.
Davis and Grillo confirmed that "certain differences of opinion" between Smith and "various investors" led to his departure. Smith wanted to continue investing more in research and development than those investors, who were more concerned about spending the company's tight resources on deploying its phone network.
The investors in question are believed to be Brown Brothers Harriman, the largest holder of Z-Tel's preferred shares. Some company observers have speculated that the Boston investment bank made Smith's resignation a condition of providing the company a new $15-million standby credit line. Davis and Grillo declined to comment on any role Brown Brothers may have had in Smith's departure.
Z-Tel is continuing talks with Smith and McDonough about the possible sale of technology and staff to a new company the two former executives are forming, the executives said. Under the deal being discussed, the new company would share the rights to the technology for Z-Tel's enhanced phone services. The new company could conceivably sell or license improvements to those technologies back to Z-Tel at a later date.
Z-Tel's most urgent task is to return to being cash-flow positive, Davis said, something the company hasn't managed to do since the fourth quarter of 2003.
In the meantime, the company is proceeding with the rollout of Trinsic, its Internet phone services business, in Tampa and New York. The company is also hoping to add customers to its original business of providing phone service over traditional copper-wire phone networks, Davis said.
The Federal Communications Commission said recently that it expects to impose a six-month freeze on anticipated increases in how much Z-Tel and other alternative phone companies pay established phone carriers such as Verizon Communications for access to their networks.
Grillo said Z-Tel has stepped up its marketing efforts for Trinsic phone and high-speed Internet access services for business customers in Tampa. Although many players are jumping into the Internet phone market, Grillo said small to medium businesses have been underserved, giving smaller companies such as Z-Tel a place to carve out a niche.
Grillo acknowledged that Z-Tel will face stiff competition from phone and cable companies in the area once it launches an Internet phone service for residential customers. To better compete, Z-Tel may consider partnering with another company to offer the much-coveted "triple play" product lineup of voice, Internet and TV services.