In a terse press release, Verizon said its merger agreement allowed the company to break ties if any material changes to NorthPoint's business occurred.
"NorthPoint recently reported a continuing decline in revenues, an erosion of its customer base, an increase in expenses due to write-offs for increased bad debt, and as a result, a material increase in net losses," a Verizon statement said. "Given the material adverse changes, (Verizon) has terminated the agreement as permitted."
The local phone giant also said it has no obligation to help NorthPoint secure new funding. More details on the effects of the merger termination on Verizon itself will be released Thursday, the company said.
The news was met with dismay from NorthPoint executives, who said they were looking into legal options.
"I am stunned to get the news after months of conversation with Verizon on the strong business opportunities available to the combined entities," CEO Liz Fetter said in a statement. "Verizon was not entitled to terminate these agreements, and we are exploring all our options, including funding options and legal remedies."
The two companies struck their merger agreement in August, with plans to form a new high-speed Internet company with a national footprint.
Since that time, NorthPoint has undergone a series of blows to its business and stock price, however. Most recently, it revised third-quarter revenue estimates sharply downward, from $30 million to $24 million, as a result of unforeseen customer bankruptcies and other payment issues.
Shares in the company were trading below $1 in the after hours session Wednesday after falling steadily from a one-time high of as much as $38.
Other service providers, including Covad Communications and PSINet, have also cited customer payment delinquencies as partially responsible for financial woes. Verizon peer SBC Communications has a similar joint venture with Covad, which cut 13 percent of its staff earlier this week.
Verizon said it still maintains its original $150 million investment in NorthPoint but has cut its other ties.