Bermuda-based Flag Telecom Holdings Ltd. has gone out of service after mounting debts forced it to file for bankruptcy protection on Friday.

The company, which was floated last year, filed for Chapter 11 bankruptcy protection in the United States on Friday, and is just the latest in a long line to buckle under mounting debt amid industry-wide over-capacity and slumping demand.

The fall-off in demand has hit Bermuda hard. Bermuda had been at the forefront of the race to link the world with fibre optic cable. So far 360networks, the owners of TeleBermuda International and Globe Net, and Global Crossing have both gone belly-up.

In January Bermuda-based telecommunications giant Global Crossing announced it had started bankruptcy proceedings in the Supreme Court of Bermuda and in the US.

Global Crossing's sudden implosion did more than sting shareholders, creditors and employees.

It burdened the telecom industry with new worries about solvency and accounting irregularities while prompting some investors to flee the sector.

"Global Crossing was a wake-up call for a lot of people that didn't realise how bad the telecom sector had become," said Scott Cleland of the Precursor Group, a Washington, DC, research firm just two weeks ago.

The $300-billion-a-year industry has been staggering under excess capacity, falling prices and mounting debt since the tech market bubble burst in March 2000.

In the process, some 500,000 telecom jobs have disappeared and investors have absorbed $2 trillion US of paper losses.

Telecoms that filed for bankruptcy protection or went out of business before Global Crossing included Mcleod USA, Vancouver-based 360networks, Viatel Inc., Winstar Communications, PSINet Inc and Northpoint Communications.

Last month, fibre-optic Last month, fibre-optic company Adelphia Business Solutions Inc. also filed for bankruptcy, citing a "virtual shutdown of the telecommunications capital markets".

Their financial problems began at least three years ago when the industry overestimated demand and overbuilt supply.

And Flag, which operates a global, undersea communications network and which once had about 25 staff in Bermuda but now has just a small presence, is just the latest in this long line.

The company said its board authorised the bankruptcy filing after a syndicate of banks sped up repayment of bank debt owed by its Flag Atlantic Ltd. unit.

That, in turn, triggered a cross default on its outstanding senior notes, the company said.

The filing comes less than two weeks after Flag's auditor expressed doubt about the company's ability to continue doing business.

On Wednesday, Flag - which is an acronym for "fibre-optic link around the globe" - announced a debt restructuring proposal and said it would try to negotiate with certain creditors.

Flag said on Friday that if it reaches an agreement with them, it would file a reorganisation plan with the court outlining plans for the company to emerge from bankruptcy.

Flag had $3.3 billion in assets, and $2.60 billion in debts as of March 31, according to documents filed with the US Bankruptcy Court for the Southern District of New York.

The telecommunications industry has been slammed by slowing demand for data and voice transmission services in the weak economy. Stiff competition, price wars and a glut of network capacity has compounded these woes.

Flag said it will continue to provide network capacity to its customers, which include telecom carriers, Internet service providers and other content providers. It said it would conserve capital and reduce costs "where appropriate".

The company is backed by publicly traded companies such as local telephone giant Verizon Communications, which owned 18.6 percent of the company as of December 31, and conglomerate Tyco International Ltd., which owned 11.2 percent, according to the bankruptcy filing. When it was set up Bell Atlantic was its main shareholder.

Flag's largest unsecured creditors include Bank of New York, York Capital Management and Colonial Management Associates Inc., court papers said.

The company also said: "Certain subsidiaries of the company have also filed voluntary petitions under Chapter 11."