A Dublin-based telecoms firm which raised $100 million (€110 million) in private funding last year is in crisis talks with its shareholders and may be put into liquidation.
QOS Networks, which is running out of cash, is also considering legal action against its leading shareholder, US private equity firm Warburg Pincus, which it claims will not consent to a complex shareholder restructuring that could save the company.
The firm, incorporated in the Republic in October 1999, based its business on guaranteeing quality of service to firms on native IP networks. Its network carried services such as streaming media for large enterprises.
QOS Networks's problems are the latest in a series of cash crises to affect the international telecommunications sector as firms cut back on technology spending and venture capital funds dry up.
Mr Daniel O'Neill, executive chairman, confirmed to The Irish Times that the firm did not have a future with its present corporate structure. He said QOS Networks's executives were considering whether the company should be put into liquidation or whether it could be kept alive by selling off its key assets to a third party.
Mr O'Neill said the company needed another $10 million to break even in 2002. Funding had been pledged by a third party and existing investors, but this plan had been blocked by Warburg Pincus, he added.
"The principal problem is that Warburg Pincus, the principal investor in QOS, has decided to withdraw from the telecoms market," said Mr O'Neill.
"We have (funding) commitments from other existing investors and an English investment bank, but in order to play, we must get Warburg to agree to restructure the company."
A spokesman for Warburg Pincus contacted by The Irish Times would not comment on the issues. But it is believed the firm is not satisfied that the new investor is genuine.
The company owns 61 per cent of QOS Networks, having invested about $30 million in the company. According to Mr O'Neill, it will not sanction a restructuring that would reduce its holding to 30 per cent.
Other investors in QOS Networks include Global Crossing, US investment group Signal Lake and a group backed by international financier Mr George Soros.
Mr O'Neill said QOS would continue to be an Irish company. "The business side (of QOS) is terrific. All the things we said we could do we've done," he said.
Much like several other failed telecoms firms, QOS Networks expanded extremely quickly, establishing networks in 28 countries within two years. Company documents filed in Dublin's company registration office show the firm lost more than $15 million between November 12th, 1999 and December 31st, 2000.
QOS Networks' cash reserves had slipped to just $9 million by April 30th, 2001, down from $21 million in December 2000. This extremely high cash burn rate, combined with the collapse of a major vendor financing deal with Lucent, worth some $25 million, effectively plunged QOS Networks into crisis.
The firm refused to pay Lucent more than $8 million for equipment, which it alleged was faulty. This dispute was recently settled. QOS Networks was unable to secure as attractive a vendor financing deal with its new suppliers, Cisco and Riverstone.
The company dismissed its chief operating officer, Mr Jim Hendrickson, over the vendor problems. It is understood Mr Hendrickson has filed an employee dismissal suit in New York. QOS reduced its workforce from about 90 to 40 earlier this year, according to the company's accounts.
