Bell Atlantic's DSL Effort Crawls Behind
Other Baby Bells
By Scott Moritz
Staff Reporter
7/28/99 7:00 AM ET
Bell Atlantic (BEL:NYSE) reigns supreme over the wealthy,
populous Northeast region, but the phone giant has been
moving at a snail's pace to deliver quick access to the
Internet.
At a breakfast with analysts Wednesday to outline its
broadband strategy, Bell Atlantic is expected to reveal
anemic digital subscriber line, or DSL, sales. Some industry
insiders are even suggesting that the Baby Bell may need to
spin off a division, or create a separate subsidiary, akin to its
wireless business, Bell Atlantic Mobile, to handle the
high-speed access business.
"I think they have every intention of setting up separate
division," says Michael Balhoff, a telecommunications
analyst with Legg Mason Wood Walker, who has a buy on
Bell Atlantic, U S West (USW:NYSE) and GTE
(GTE:NYSE). "[DSL] is a potentially large revenue source for
them and it would be appropriate if they set it up to
adequately respond to that," Balhoff says. (Legg Mason has
no underwriting relationship with any of the regional Bell
telephone companies.)
Bell Atlantic officials would not answer questions regarding
DSL subscriber numbers, and downplayed any speculation
that a major shakeup may be in the works.
The DSL technology, which allows fast Internet access
through existing copper phone lines, is the phone industry's
answer to cable modems. And as studies show, it is
sustained demand for high-speed data and Internet services
that will provide growth for the phone companies. Last
Wednesday, Bell Atlantic said second-quarter earnings rose
11%, to $1.2 billion thanks to growth in wireless and data
services.
But the Baby Bells as a group have been slow to roll out
their broadband strategy. In the past eight months, Bell
Atlantic has acquired far less than 20,000 subscribers,
according to analysts and industry executives. This puts Bell
Atlantic at the back of a crawling pack of Baby Bells.
SBC Communications (SBC:NYSE), which started the
year with 3,000 subscribers, signed on an impressive 32,000
subscribers as of the second quarter. U S West, which runs
its DSL operations through a separate !nterprise
Networking division, leads the pack with more than 52,000
subscribers.
"The regional Bells are about steady returns, they're not
growth companies, and not aggressive in areas where they
may lose money," says Mike Smith, a senior
telecommunications industry analyst and consultant with
Stratecast Partners. Smith advises telecom service
providers, including the Bells.
That may be hurting some of the smaller ISPs. Privately held
Huntington Beach, Calif., ISP Flashcom signed an alliance
agreement with Bell Atlantic in June, but President and CEO
Brad Sachs says the company's slow uptake and shifting
technology decisions means that he has been unable to sign
on any subscribers thus far. "They're a phone company, for
chrissake," says Sachs.
On the horizon is the threat of AT&T (T:NYSE), which is
spending $110 billion to amass a cable empire capable of
delivering broadband services -- everything from multiple
phone lines to instant Internet access -- to hundreds of TV
channels and video services simultaneously.
The Bells also face heat from start-ups such as Santa Clara,
Calif.-based Covad Communications (COVD:Nasdaq) and
NorthPoint Communications (NPNT:Nasdaq) of San
Francisco, which are picking off the small- and
medium-sized businesses by undercutting the Bells'
conventional T1 high-speed lines.
"I think a lot of people are overfocused on DSL, at least from
a financial standpoint," says Bruce Roberts, an analyst with
Dresdner Kleinwort Benson, which has a buy on Bell
Atlantic and a hold on U S West. Roberts said there is still
limited awareness of DSL among general consumers, but
another barrier could be the hefty $40 to $60 monthly
charge.
"If I am looking to see who is determining the DSL market, I
see companies like NorthPoint, Covad and [Englewood,
Colo.-based ] Rhythms NetConnections (RTHM:Nasdaq),"
adds Stratecast's Smith. "They are deploying DSL from the
time they get up in the morning to the time they go to bed at
night. It's what they do."
Bell Atlantic needs to find that intensity if it wants to play the
DSL game. |
