The company responsible for managing the fiber-optic middle mile broadband network connecting 123 communities in Massachusetts has filed for bankruptcy.
KCST USA Inc., formerly Axia NGNetworks USA, filed Wednesday in U.S. Bankruptcy Court in Worcester. In the filing, the company states that it has operated the networks “at a substantial loss from its inception.”
The company contends that the Massachusetts Technology Collaborative, which owns and oversaw the construction of the fiber-optic infrastructure, did not deliver on commitments made in the network operating agreement and related “ramp-up plan,” according to court documents.
The collaborative, which oversees the Massachusetts Broadband Institute (MBI), said in a statement it would ensure that service would be uninterrupted to MassBroadband 123 customers during the bankruptcy proceedings.
The middle-mile broadband has approximately 1,200 miles of fiber-optic network in west and north central Massachusetts, covering more than one-third of the state geographically. KCST provides wholesale service to local retail internet service providers that offer broadband services to public safety entities, schools, libraries, medical facilities and town halls, according to MBI.
In 2014 and 2015, KCST reported a net loss of more than $3 million each year. For the seven months ending July 2016, the company reported a loss of nearly $2.4 million.
The court filing states that KCST projects approximately $2.9 million in annual revenues, against approximately $5.7 million in annual operating expenses, leaving an operating deficit of approximately $2.8 million.
Attorneys for KCST did not immediately return a call for comment Thursday.
KCST and the collaborative entered into a network operator agreement in March 2011, which made KCST responsible for “all aspects of management of the 123 Network, including sales and support services.” The collaborative maintained responsibility for the design and construction of the network.
The two companies’ relationship has been fraught since 2014 when the collaborative filed a suit against KCST in July 2014 in Suffolk County Superior Court, for “anticipatory repudiation under the (agreement) and related relief …” according to filings.
In a statement, the collaborative called the news of the bankruptcy filing “sudden” but said it was pleased that KCST intended to continue to operate the network while in bankruptcy.
Calling KCST’s financial problems “solely its responsibility,” the statement continued, “Axia/KCST’s obligation to continue operation of the Network has been guaranteed by the large Canadian network operator Axia NetMedia Corporation, which continues to be responsible for ensuring continued uninterrupted service.
“MBI intends to continue to hold both Axia parties accountable under their contracts, and to ensure that MassBroadband 123 will continue to provide quality broadband service to customers across Western and North Central Massachusetts.”
KCST has been able to receive “a postpetition loan” in the amount of $860,000 to fund operations for a 13-week period while it “explores whether a modification to make the network viable can be achieved,” the filing reads.
“Unless such a modification can be achieved, the Debtor will not be able to continue operating the network and will need to reject the network operator agreement.”
A hearing is scheduled for Friday in Springfield.