DBC Bankruptcy Is Tip Of DSL Iceberg
(12/28/00, 5:01 p.m. ET) By Kim Renay Anderson, TechWeb News
The DSL market is swimming in troubled waters.
Digital Broadband Communications, which offers high-speed Internet access, will no longer be in business as of January 12, 2001, having filed for bankruptcy on Wednesday.
This news comes just two weeks after the Waltham, Mass. company said it would discontinue its DSL service and lay off 85 percent of its employees.
Other DSL providers, including NorthPoint Communications, San Francisco, Calif. are also having problems, said Meredith Rosenberg, analyst with the Yankee Group in Boston, Mass.
NorthPoint (stock: NPNT) recently announced a reduction in its third-quarter revenue from $30 million to $24 million. In addition, it laid off a significant portion of its work force after Verizon Communications (stock: VZ) backed out of its proposed deal to merge the companies' DSL businesses.
The deal's demise caused Northpoint's stock to plunge.
Other struggling DSL providers include Rhythms NetConnections Inc., Englewood, Co. and Covad Communications Group, Santa Clara, Calif.
Both companies have watched their stock value fall 90 percent from market highs.
In November, Covad (stock: COVD) said it would cut operating costs and reduce its work force by 13 percent. This move, which would affect about 400 employees, is part of an effort that began in July, said a Covad spokesperson.
"These companies have gone into a downward spiral, laying off people. [Their] stocks are trading under a dollar," said Rosenberg.
Rosenberg calls it a case of demand outstripping supply. "DSL providers don't have the capital to deploy DSL as fast as they thought they could and keep up with the demand."
Joshua Wise, analyst at Allied Business Intelligence, Oyster Bay, N.Y. said that provisioning is a critical problem for DBC and other DSL players. Demand doesn't do any good if companies can't meet it, he said.
"When somebody has to wait six to eight weeks for a DSL line to be up and running, it leaves people unenthusiastic for the technology," said Wise
"Also, it ends up costing the DSL provider more money because they have to send more than one technician out to deploy the DSL line."
Until DSL can be installed quickly and running within a week, cable is going to continue to dominate the market, Wise added.
Rosenberg said that DBC's failure will cause surviving DSL providers to reexamine their businesses in the new year. Most likely there will be more consolidation among DSL providers such as the Hughes Electronics Corp. (stock: GMH) takeover of Telocity Delaware Inc. (stock: TLCT), announced last week. |
