Telecom rival
gets approval to buy
assets of SummitDirect Telephone's $307,000 deal
will allow it to carve out a larger
niche in Hawaii's market
A U.S. Bankruptcy Judge has approved the asset sale of bankrupt Summit Communications Inc. to Direct Telephone Co., a Texas telecommunications rival that has small-scale expansion plans for Hawaii.
Direct Telephone is paying $125,000 and assuming $182,000 in telecom equipment leases. With the purchase, Direct Telephone acquires Summit's customers, and gets its own telecommunications network, freeing it from depending on dominant local telephone company Verizon Hawaii.
Direct Telephone, operating here as Hawaii Direct Telephone Co., is a relatively young telecommunications firm, in business since 1997, and works in several states as an exchange carrier offering local- and long-distance calling services.
In the 17 months since getting approval to operate telecommunications in Hawaii from the state Public Utilities Commission, Direct Telephone has taken on about 1,000 customer lines, and is acquiring roughly 2,200 to 2,300 more customer lines with the purchase of Summit, said Nik Thomas, president of Hawaii Direct Telephone.
Thomas said the firm's plan is to grow to 50,000 customers in the next two or three years, by diversifying its telecommunications offerings to include more products. The company plans to cater to the business market and not to homes.
To give some sense of proportion, Verizon Hawaii has 1.5 million residential and business access lines around the state.
"We view Hawaii as a market that needs somebody to at least offer choices," Thomas said.
Summit, founded in 1996, acquired telecom business around town, such as providing call-center customer service for the Hawaii Visitors & Convention Bureau, and shared-tenant services for large buildings. Summit's management ran into troubles and the firm encountered a major tax problem, lost business, then filed Chapter 11 reorganization bankruptcy in February 2002.
At the urging of the taxing authorities, the Bankruptcy Court ousted Summit's management and appointed trustee Derek Sakaguchi, who quickly found that the only salvation for Summit and its creditors was to sell the assets.
Summit owes more than $1 million in taxes, including penalties and interest, among other debts. Direct Telephone's $125,000 purchase price will only pay part of a federal tax claim, and part of the administrative cost of the bankruptcy case, which receive priority for repayment.
U.S. Bankruptcy Judge Robert Faris approved the asset sale yesterday, saying it is in the best interest of Summit's bankruptcy estate. Summit is hemorrhaging money each month, and other bidders have had opportunities to buy the company. Summit has lost $406,000 since filing for bankruptcy, on $2.5 million in revenue.
The court did not allow others to make a bid for Summit yesterday. Cuyler Shaw, an attorney representing Summit's trustee Sakaguchi, said getting a basic telecommunication certification from the state takes two months, and it was uncertain whether Summit could keep its doors open much longer. Direct Telephone received a so-called "certificate of authority" from the state in March 2002.
Prior to reaching agreement to buy Summit's assets, Direct Telephone had been outsourcing to Summit.
Direct Telephone passed a major hurdle yesterday in getting the court's consent to buy the assets, though it still has more to do. The Hawaii visitors bureau says it was overbilled $160,000 by Summit, and has not reached agreement to let Direct Telephone take over Summit's role.
Thomas said Direct Telephone simply cannot pay for Summit's mistakes, though he hopes to reach an agreement with the bureau, or at least work for the bureau in an interim period while the nonprofit tourism marketing agency finds another vendor.
The state Public Utilities Commission has blessed the sale of Summit's assets to Direct Telephone, and has allowed Direct Telephone to provide the shared tenant services offered by Summit, but only on a temporary basis. Direct Telephone and Summit filed their petition for approval Aug. 26 with the PUC, eight days before yesterday's hearing.
The PUC plans to continue its review of the petition. Direct Telephone must notify the commission and the state consumer advocate of any disruption in service.
Summit's bankruptcy troubles are not over. Sakaguchi has filed a lawsuit against the family of Summit co-founder Harold Johnston, and is seeking damages from the Johnstons for mismanaging the firm. The Johnstons have denied wrongdoing, and say the suit is based on incorrect information.
Damages from the lawsuit may be the only hope for creditors.
Meanwhile, Direct Telephone plans to decide by tomorrow whether to vacate Summit's office space downtown at 1132 Bishop St., which is owed rent. Direct Telephone sees itself as having the potential to become a major cellular telephone player, and hopes to open six retail sites here.
