DSL Prime: Fallout

While the industry awaits a groundbreaking decision from the FCC, the uncertainty is taking its toll on the competitors who may be harmed when a decision is made.

by Dave Burstein DSL Prime [January 9, 2003]

Southwestern wipeout: IP Communications
Facilities can't compete in SBC territory
$332 million wasn't enough to compete with SBC in Texas and Oklahoma, although IP developed a network that claimed to reach 90 percent of the customers in the area. 12,000 customers, many placed through failing ISPs, were not enough to cover network costs, so IP is not trying to reorganize in Chapter 11. They'll told customers they'll be shut off by February 8, according to a posting on DSL Reports.

DSL.net, which bought NAS to expand in the NorthEast, made a small bid that was withdrawn on Dec. 6. Lucent has a $40 million secured claim that is greater than any likely value of the assets. Lots of Stingers headed to the used market if no one steps in. CSFB/DLJ, GE, and CIBC have deep pockets, but decided that the $32 million lost already in 2002 was unlikely to be recovered.

39 companies refused to buy or invest in IP.net when approached in the last few months.

The coming FCC Triennial review played a major role in one funder's decision to bail. "Consumer is dead without linesharing, and Powell probably wants to kill it. It would cost another $10 million to wait for the decision, and we decided the odds were too long."

I don't know if the Chairman reads DSL Prime, but someone should tell him that ending line-sharing kills DSL competition for consumers. Be ready to laugh out loud if the announcement suggests otherwise—and to cut through the bull if you're a reporter.

Talking to an FCC official soon after the news hit, we commiserated on how hard it now is to solve telecom problems. For a decade, competition seemed the answer, but as nearly all the competitors fail, that just isn't working. Telecom's most interesting public intellectual, Columbia Professor Eli Noam, long an advocate of deregulation and competition, sees the same problem, and is looking for alternatives. "We learn" Noam tells me. Implicitly, most of the powers in U.S. policy, from Powell of the FCC to Matt Flanagan of TIAA, have given up on wireline competition no matter what their rhetoric.

Covad's future is set
AT&T surely did their due diligence on Covad before signing on, and clearly is convinced Covad will be a longterm survivor. The shadow hanging over Covad —will they sell enough to reach breakeven—is apparently resolved. Charlie Hoffman told me today they're ready to deliver what AT&T needs to grow sales, and that volume alone changes the company's future. Covad still has challenges —growth is flat, ISPs struggling, Earthlink just cut a separate peace with SBC. Covad's residential service will be crippled if Abernathy and Martin don't protect linesharing, but business is where their real money comes.

AT&T consumer voice is in profound trouble
If the FCC cuts UNE's, AT&T needed the 1500 NorthPoint COs they just wrote off ($200M). One viewpoint is that they can still work through Covad and expand the deal, but that would cut many strategic options. Far more likely is that AT&T has made the basic decision to milk consumer for what's left of the remaining cash cow, and let consumer essentially die over the next decade. That's consistent with Mike Armstrong's comment "I've raised prices 6 times", but a tragedy for U.S. deregulation.

DSL Prime's Conflicts of Interest
The new year is a good time to remind readers DSL Prime is a business; the editor and publisher, Dave Burstein, hopes to make enough money not to be poor in his old age.

Ad sales raise an obvious conflict. I have to follow my conscience, and you as a reader will have to judge whether DSL Prime has fairly and accurately covered advertisers. This isn't just theoretical, ask me over a drink some of the experiences. I also have been paid for presentations to corporate meetings, consulting, etc., which I make a point of mentioning when they occur. I've lately spent an intense day or two reviewing the DSL industry and the company's strategy (under non-disclosure) at several companies. It was useful for them, I learned a lot, and it pays pretty well, so I welcome gigs like that. Some "consulting" offers have involved so little work they didn't pass the smell test, and I turned them down.

I accept travel expenses. I don't have any interesting investments, but have reserved the right to put money where my mouth is, if I make the same recommendation publicly.

Copyright 2003 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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