Big Dig KOs Byte & Switch

Allegiance Telecom Inc. (Nasdaq: ALGX) is blaming construction workers in the Boston area for crushing an entire fiber duct belonging to the service provider Tuesday, causing massive disruption to hundreds of businesses up and down the eastern seaboard.

Allegiance, a national local exchange carrier (NLEC) serving 36 states across the U.S., initially blamed Level 3 Communications Inc. (Nasdaq: LVLT) for the outage, which disabled Byte and Switch -- and its sister publications Light Reading, Unstrung, and Boardwatch -- for most of the business day. The Boston Globe Website was also down all day, as was Infonetics Research Inc. and many other firms in the Boston area.

After a day full of finger-pointing, Allegiance finally admitted that the problem was theirs to solve and explain. "It turns out it wasnt Level 3, or MCI, or Genuity Inc., as we had initially thought, but a giant piling that fell on our mega POP at 450 D Street in Boston,” says Jerry Ostergaard, director of public relations at Allegiance. The piling apparently cut four OC48 links.

Ostergaard was unable to confirm who was responsible for the damage. “They are saying it’s an outside contractor working on the Big Dig, but we aren’t sure.” He was also unable to say when the fiber cut is likely to be repaired. “It could be another couple of hours,” he said at 2:30 P.M. EST. [Ed. note: Byte and Switch came back online at 5:15 P.M. EST.]

Boston is in the process of building a vast underground roadway system, known as the Big Dig, which is costing billions of dollars (the latest estimate is $14.6 billion for the 7.5-mile highway) and has been responsible all manner of chaos in the Boston area, for which some have nicknamed it "The Road to Hell."The outage will no doubt cost Allegiance big bucks, and the service provider is already in financial hot water. "A big swath of people have been affected by this," says Kevin Mitchell, an analyst with Infonetics Research. "It’s not good timing for the company."

Allegiance was supposed to reduce its loans to an agreed $645 million by April 30, but it failed to do so. Miraculously, it won a reprieve from its lenders, which extended the deadline until May 15.

"They are in a tight spot -- after paying $5 million to extend negotiations with the bank for this extra time, it still doesn’t look good,” says Cannon Carr, an analyst with CIBC World Markets. “It’s very difficult to do, but it’s in the banks’ best interests to make this work, as it’s not clear how much the company is worth at this point.” He adds that a likely possible outcome is a bankruptcy filing.

Allegiance’s share price rose 14 percent today, reaching $0.35.

— Jo Maitland, Senior Editor, Boardwatch