Telergy’s roller-coaster history symbolizes the tech bubble

Telergy’s roller-coaster history symbolizes the tech bubble

Brian Kelly, an inveterate entrepreneur, and his two brothers, Kevin and William, all native Syracusans, formed a truckwashing business in the 1980s. Brian supplemented his income by selling telephone equipment part time.

In 1991, the Kelly brothers formed Telecommunications Management Systems to manage both local and long-distance phone service for hospital patients. The certificate to re-sell long-distance service led the three to form KCI Communications, which could serve a broader base of customers. By 1995, KCI employed 50, including former mayor Thomas Young, the corporation’s chief operating officer.

The Kellys created Telergy in 1995 and in March 1996 received a $500,000 investment from Plum Street, an energy spin-off of Niagara Mohawk following the industry’s deregulation. Telergy was created to be a facilities-based provider of integrated broadband-communications services and high-bandwidth fiber-optic capacity. The company focused its efforts on building an intranet throughout the Northeast that combined direct, last-mile connections to the customers with intracity rings and long-haul capacity. Telergy’s primary goal was to market its services to large businesses and to institutions in the health-care, education, and finance fields, as well as to government sectors.

In order to beat the competition, Telergy developed unique relationships with utilities like Niagara Mohawk, ConEdison, and New York State Electric & Gas. The utilities, eager to find new revenue streams after deregulation, granted both property rights-of-way and joint-marketing relationships capable of reaching more than 10 million potential customers. Telergy’s plans called for a network by 2001 of over 3,200 miles extending from Washington, D.C. to Montreal.

In 1999, Telergy was a high-flying company. The Kelly brothers, who owned 24.6 percent of the company’s shares and controlled 80 percent of the voting stock, decided the time was right to issue an initial public offering (IPO). At year’s end, the company bought the former Carrier world headquarters located in the Town of DeWitt and expanded the 94,500 square-foot building to 115,800 square feet at a total cost of $16 million.

To reach the goal of becoming the preferred provider of broadband services, however, the company needed large sums of capital. Just to build the network, Telergy required $500 million. In 1999, the company’s president and former chairman of Avis, J. Patrick Barrett, announced that Telergy planned to raise $1.5 billion in financing just in the next 18 months.

Not long after Barrett’s statement, the “technology bubble” burst, making investors cautious of investing in anything hightech. Telergy, facing an October 2001 deadline to refinance $200 million in loans, withdrew its IPO and sought either a strategic partner with deep pockets or a buyer. Unsuccessful in its efforts, the company collapsed in August 2001 under a mountain of debt. The officers and directors resigned and were replaced by a crisis manager.

Telergy filed for bankruptcy-liquidation in December 2001, listing $558 million of liabilities. One bank consortium had loaned the company $330 million. Unsecured creditors were owed $172 million.

Oct. 10, 2002, marked the end of the Telergy, which at one point employed 615. Michael Fox International auctioned off 4,000 company items, including Telergy’s headquarters building for $4 million. This was the closing chapter In the company’s brief history.

Copyright Central New York Business Journal Oct 20, 2006

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