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ANOTHER INTERNET SERVICE PROVIDER IN TROUBLE VIVANET IS OPERATING UNDER CHAPTER 11 PROTECTION

Three months after the failure of Moran Communications Group, another Internet service in Western New York is on shaky ground.

Optinet Inc., a Rochester-based company that operates as Vivanet, filed for Chapter 11 reorganization June 20, listing assets of $100,000 and debts of $1.4 million. About 1,000 of its 5,000 subscribers are in the Buffalo area, affiliates said.

The service will remain "up," attorney John J. Giardino said. But competitors report some of Vivanet's subscribers and Web page clients are leaving, wary of being caught in a replay of Moran's failure in April.

Vivanet's problems stem from the apparent collapse of a fast-growing group of Buffalo technology ventures called Memtel, an umbrella organization that included the Rochester company. Memtel's financial troubles have rocked other local technology companies, soured $1.1 million in loans from M&T Bank and set off speculation about the entrepreneur at the center of the ventures, Rutledge Ellis-Behnke.

"What I saw was an aggressive plan to build several companies simultaneously," said Susan Domkowski, who worked in management for Optinet and another of Ellis-Behnke's ventures. "That's very difficult to do -- you can spread yourself too thin."

Together, the ventures had a combined employment of about 70 people, including Optinet's Rochester operations, she said. Ms. Domkowski resigned as president of Optinet shortly after its Chapter 11 filing because the company was unable to pay salaries, she said.

Ellis-Behnke could not be reached for comment, leaving substantial questions about Memtel unanswered. Business associates portray Memtel as an
ambitious group of technology ventures that inexplicably saw its promising fortunes replaced with vacant offices and unpaid bills.

Memtel's story began about two years ago.

Ellis-Behnke, with two other principals, incorporated Mempack Corp. in Buffalo in 1995. Mempack bought computer memory chips wholesale and sold them nationwide via 800 numbers and the Internet. In an interview with The Buffalo News in August 1996, Ellis-Behnke projected annual revenue of $6 million.

Late in 1996, Ellis-Behnke formed Optinet Inc. and used it to acquire Vivanet. Optinet wasn't a subsidiary of Mempack, but the two companies shared some resources, Ms. Domkowski said.

The plan, she said, was to ally these and other technology companies under the Memtel umbrella. The organization would split overhead costs, such as personnel functions, while allowing related ventures to gain leverage from each other's strengths. For example, together the ventures could obtain cheaper Internet connections from service "backbone" providers.

But sometime earlier this year, Mempack began having trouble paying its bills, affiliates said. The company terminated operations this spring, a former affiliate said. Mempack's phone line remains in service but goes unanswered.

"Mempack's problems affected Optinet," attorney Giardino said. Although he doesn't represent Mempack or Ellis-Behnke, he knows of efforts by M&T to collect on assets of Mempack and related ventures.

Some business affiliates say a bank audit came shortly before Mempack's closing. They raise the question of whether the company's resources were misrepresented in order to increase its line of credit. A bank spokeswoman refused comment.

After Five Technology Inc., an affiliate that shared space at Mempack's 645 Main St. office, severed ties with the venture in June, owner Jim Gerland said. Gerland found that bills Mempack was supposed to pay had gone unpaid, endangering After Five's business of designing and hosting Web sites, he said. Gerland writes a freelance technology column for The Buffalo News.

Some former business associates say they've been unable to reach Ellis-Behnke in recent weeks. Ms. Domkowski said that's not unusual, since he's habitually busy and difficult to reach.

On June 11, nine days before Optinet's Chapter 11 filing, Ellis-Behnke was installed as a director of the Buffalo and Erie County Private Industry Council, a training organization that seeks representatives of fast-growing industries to serve on its board. Business setbacks wouldn't preclude Ellis-Behnke from serving, a council spokesman said.

Since Optinet's filing, M&T has helped the company meet bills and payroll, allowing operations to continue, Giardino said. The bank -- Optinet's major creditor with $1.1 million in loans outstanding -- supports a recent court filing by the company to come out of reorganization, he said. Vivanet may be sold or merged with a financially stronger service, he said.

"All customers are being serviced and will continue to be serviced," Giardino said.

But companies and non-profits that depend on Vivanet to carry their World Wide Web sites are nervous, competing Internet providers said.

"Those with Web pages are looking to move," said Cheryl Franklin, vice president of Franklin Communications Services in Cheektowaga. Although Vivanet is still up, some customers say the company has had technical troubles and hasn't sent out bills for more than a month. Vivanet's Rochester phone number is in service, but goes unanswered.

Internet subscribers and Web clients are wary after Moran's collapse, service providers say. The locally based provider left hundreds of subscribers without service, some of whom had paid for a year in advance. Now, Optinet's troubles are reinforcing fears about the fledgling Internet industry, service operators said.

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