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Trinsic tries to turn it around

A new deal with Verizon gives the struggling phone company a reprieve, but a year of rulings, departures and warnings has taken its toll.

By LOUIS HAU
Published April 22, 2005

TAMPA - During the past year, Trinsic Inc. has gone through more twists and turns than you'll find in the average pretzel.

There was a landmark federal court ruling on phone regulation. The departure of co-founder, chief executive and lead strategist Gregg Smith. Warnings from Nasdaq that the company's battered stock was at risk of being delisted.

The warnings were lifted. Then reimposed.

This dizzying series of events raised questions about the future of Trinsic, which changed its name in January from Z-Tel Technologies.

But on Monday, the Tampa phone company disclosed that it had inked a key agreement with Verizon Communications Inc. While the deal won't rescue Trinsic from a host of urgent financial challenges it faces, it means the company won't have to invest as heavily over the short-term in its phone network infrastructure.

"It gives the company a little bit more breathing room, a little more runway, so to speak," Trinsic chief financial officer and acting chief executive Trey Davis said Thursday.

The five-year Verizon pact will allow Trinsic to continue leasing access to Verizon's network of phone switches, which are used to complete local phone calls. The importance of the agreement stems from a federal appeals court ruling in March 2004 that overturned Federal Communications Commission rules requiring regional Bell companies and other established phone carriers to lease access to their local network switches at regulated rates.

To comply with the court order, the FCC released a timetable in December that provided for a modest price increase for access to network switches and said established carriers would no longer be required to lease access to new customers signed up by alternative carriers effective March 11.

In March 2006, alternative carriers will be required to have their customers moved off the established carriers' network switches unless they have negotiated a new agreement.

Trinsic's pact with Verizon means the company will have not one but five years to install its phone network infrastructure to replace what it is leasing from Verizon.

Trinsic is striving to build customer density in its existing markets, with a special focus on New York City, in the hopes of making its continued network-equipment investments more cost-effective, said executive vice president for business services and acting chief operating officer Frank Grillo.

Trinsic plans to eventually switch all of its customers within Verizon's service territory to its own proprietary network which uses "Internet protocol" technology.

Unlike an Internet phone service like Vonage Holdings Corp., which sends calls over the Internet and is vulnerable to broadband service disruptions and power outages, Trinsic sends its calls over its IP network and has more control over quality, Grillo said.

Trinsic, which posted a net loss last year of $33.6-million, widening from a loss of $16.1-million in 2003, has been tending to numerous financial challenges.

The company entered into a new $21-million credit facility this month with Thermo Credit LLC, replacing a credit facility with Textron Financial Corp. It said it would be laying off 107 employees, or about 12 percent of its work force, to cut costs.

In addition, Trinsic faces a renewed risk of having its downtrodden shares delisted from the Nasdaq SmallCap Market. Nasdaq warned this month that the company's market capitalization had slipped below the minimum $35-million required to remain listed. Trinsic has until May 4 to comply with this requirement.

The warning comes after Trinsic's completion last year of a tender offer for its preferred shares and a 1-for-5 reserve stock split, which were launched in response to a delisting warning from Nasdaq.

Those measures pushed the company's stock above the minimum price of $1 a share required to remain listed. But the stock has since fallen below that level, closing Thursday at 36 cents a share, down a penny.

Davis said the company would likely appeal a delisting determination, which would buy it more time.

But he argued that even if the company's shares were delisted from the Nasdaq and traded on the OTC Bulletin Board, "it's not going to change how we operate the company."

Although Trinsic still refers to its offices on Harbour Island as its corporate headquarters, its de facto headquarters are now in Atmore, Ala.

While Grillo says the company has no immediate plans to change its designated headquarters to Atmore, much of its operations have migrated there.

Davis, Grillo and the company's accounting, finance, human resources and customer-service personnel are in Trinsic's Atmore offices, which it inherited through its 2000 acquisition of Touch 1 Communications Inc., of which Davis was chief financial officer.

Despite the many challenges facing the company, Grillo said the company's Verizon pact offers a new opportunity to grow the business.

"Trinsic is never going to be the next Verizon," he said, but added if Ace Hardware can continue to survive amid competition from The Home Depot and Lowe's, his company should be able to find a profitable market niche as well.

Louis Hau can be reached at 813 226-3404 or hau@sptimes.com

[Last modified April 22, 2005, 00:43:11]