Communications DSL? That's Sooo 2000
Betsy Schiffman, Forbes.com, 05.11.01, 3:59 PM ET
NEW YORK - Once upon a time you could find digital subscriber line
(DSL) evangelists shouting about the "revolution" on every corner in San
Francisco.
Not anymore. All those fanatics have quietly retreated. If they're still talking
about it at all, it's to lament the fact that DSL is a moneylosing business
that will never turn a profit--at least not in the near term.
Case in point: Canadian networking company Nortel Networks (nyse: NT
- news - people) confirmed yesterday that it's pulling out of the DSL
business. The company used to sell DSL switching equipment to
telephone companies. The reason they canned it? DSL is going nowhere
fast.
"We're just choosing to focus on high-growth businesses, and to a certain
extent the DSL market was commoditized," Nortel spokesman David
Chamberlin says.
Neither Nortel nor Wall Street saw much potential in the company's DSL
business. Richard Shannon, research analyst at Epoch Partners in San
Francisco, says Nortel's business wasn't even substantial enough to
break out separately in the business model.
"Nortel hasn't grown market share in the space. The other part of the story
is that DSL isn't going to be nearly as exciting of a product over the next
couple of quarters--most of the providers are going out of business, and
that's not going to help demand for the equipment," Shannon says. "Nortel
has to look at the product lines that don't have great prospects and cut
them."
In January DSL provider NorthPoint filed for bankruptcy. Last month Covad
Communications (nasdaq: COVDE - news - people) bondholders sent a
letter to Covad directors pointing out that the company has a fiduciary
obligation to creditors and that it should "cease wasting its remaining
cash assets." This week another DSL provider Rhythms NetConnections
(nasdaq: RTHM - news - people) reported a net loss of $113 million; it has
about $403 million in cash, and a burn rate, it says, of about $20.2 million
a quarter.
But while consumer DSL providers are biting the dust, cable access
providers are building robust businesses.
"In the second quarter, cable added 60% more high-speed subscribers
than DSL, while in both the third quarter and fourth quarter it added close
to 80% more," wrote Banc of American analyst Doug Shapiro.
"Deployments aren't showing either seasonality or the impact of
macroeconomic softness in the first quarter...almost all of the cable
operators which have reported first quarter results so far have continued
to show accelerating rates of deployment."
If it looks grim for DSL right now, research firms still have high hopes for
the technology going forward. Forrester Research estimates that by 2005,
there will be about 17.7 million DSL subscribers. That's still lower than the
projected 22.4 million cable subscribers by that time, but it's not
insignificant--especially considering that by the end of this year, Forrester
estimates there will only be an estimated 2.9 million DSL subscribers.
"Right now, cable access is just a more elegant technology and solution.
Once DSL self-installation is more feasible, DSL can catch up, but I don't
think that will occur any time soon," Shapiro says.
But when it does, the Regional Bell Operating Companies are likely to
pounce on the market. And as it stands now, companies like EarthLink
(nasdaq: ELNK - news - people) and SBC (nyse: SBC - news - people) are
already doing marginal business in the DSL space. As of the end of the
first quarter, EarthLink had about 288,000 DSL subscribers while SBC
had about 954,000 DSL subscribers.
And you can't rule out companies like AT&T (nyse: T - news - people),
which bought up NorthPoint's assets in March for chump change. Sprint
(nyse: FON - news - people) is also building up its DSL footprint, and says
that by the end of this year it will be able to provide DSL services in 86
markets.
The real problem is that by the time DSL providers are ready for the
masses, the masses may have already signed up for cable.
Forbes.com |
