In February 2001, Bridge Information Systems, which owned a majority of Savvis and accounted for 80 percent of the company's revenue, filed for bankruptcy. Frear, a former banker and public accountant, recounts that to keep afloat, Savvis executives had to reduce the workforce by 12 percent (70 employees), eliminate overcapacity by growing the customer base, and make the network more efficient. A tough task, considering the sputtering health of the telecom market.

What's more, the Bridge mess left Savvis in default of certain loan covenants, which squelched any additional capital-raising plans. The executive team sidestepped the problem by convincing investment bank Welsh Carson to convert its existing loans to Savvis into preferred equity, which gave the investment bank a 56 percent ownership stake in Savvis.

During this same period, Frear and other Savvis executives had to devise a new business model — one that didn't rely on a single customer. Ultimately, Savvis management decided to repackage the company's services, this time broadening the customer list of high margin, private users of financial data.

Remarkably, the plan seems to be working. Within four months of putting its reorganization plan in motion, Savvis turned an $8 million per month EBITDA loss into a $1 million per month EBITDA gain.

CFOs at more established telcos will be hard-pressed to mimic the Savvis plan, however. According to Zeus Kerravala, vice president of enterprise infrastructure at consultancy Yankee Group, "traditional telecom companies would have to totally refit their sales force" to move to a IP VPN model.

Until they do, CFOs at more established telcos will most likely be locked in a reckless price war. And they're going to be stuck with a whole lot of unused assets. That's not a good thing. Says one industry consultant: "There's as much value in unused telecom infrastructure as there is in a 747 sitting on the runway with no doors."

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