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Technology Stocks : CSCO - where's the bottom?!?!? Bear Thread -- Ignore unavailable to you. Want to Upgrade?

To: FESHBACH_DISCIPLE who wrote (64)	11/18/2000 10:31:18 AM
From: bambs	Read Replies (1) \| Respond to of 253

TheStandard.com Something's Rotten in the State of Telecom By Jason Krause After the high-profile bankruptcy of ICG this week, telecom infrastructure company ZipLink has announced that it is closing. Both failures point to something rotten at the core of the telecom sector. ZipLink and ICG were in the business of selling Internet connectivity to Internet service providers. ICG failed largely because it mismanaged its customers and sold connectivity at too low a cost to support itself. ZipLink failed because it could never get enough customers to fill its network in the first place, and because in the past few weeks, two of its biggest customers have either failed to pay or are on the verge of going under themselves. Both companies clearly show that the massive buildout of telecommunications networks during the past few years has been too aggressive. With companies selling dialup access at money-losing prices, a number of ISPs have been compelled to sell their services at dirt cheap prices or give them away. And with too many companies offering Internet service at low prices, a shakeout was inevitable. ZipLink specifically cited the failure of free ISP Spinway to pay for service for the month of September. Spinway, for its part, denies that it has defaulted on payments. "I don't know why they're saying that," says Spinway founder Danny Robinson. "I'm disappointed that they'd say that. We've got enough cash on hand. We can pay them." But even assuming that Spinway does come up with the cash, another big customer of ZipLink, 1stUp, announced Monday that it will close in 60 days unless a buyer or investor was found. "The free dialup market is dying," says Ryan Gilbert, whose own dialup-services startup, Brand3, is looking for investors. "The customers let ZipLink down," Gilbert adds. "What's killing people is the inability of customers to pay." As customers failed to pay, ZipLink gave up on ever turning a profit and closed its doors. According to President Chris Jenkins, ZipLink was selling Internet access wholesale to ISPs at roughly 20 cents a minute, but the cost to provide that service was costing it more than 20 cents a minute. ZipLink eventually could have lowered its costs if it had gotten more customers. Instead, the company was only losing customers and burning cash. Companies like ZipLink say they could have made it, but just ran out of cash before their model proved itself. "We were adding 10,000 to 15,000 new customers a day," Jenkins says. "I don't know what we might have changed. If I had it to do over again, maybe we would've stopped building out the network this summer. It was just a matter of getting to full capacity [on the network]." The first high-profile company to stumble was perhaps Covad, which sold high-speed digital-subscriber line access. Covad is still very much in business, but its popular CEO, Bob Knowling, quit last month amid intense criticism as the company announced that more customers were failing to pay. The strategy behind companies like ICG, ZipLink and Covad was to suck it up and suffer through the painful growing period needed to build a national power - typically months or years of bleeding investors' cash - and come out on the other side a telecommunications force. As it turns out, investors got mighty sore waiting, especially when some of the bold, heroic CEOs like Knowling, who had initially sold them on these companies, continued to announce ever more disappointing reports. For these wholesale companies to be profitable, they needed a lot of paying customers. Instead, more customers went under, dragging ZipLink and ICG with them. The trickle-down effect could ruin more of the telecommunications industry than just wholesale telecom companies. Most of the struggling or failed companies buy millions of dollars of equipment from Cisco and other equipment makers that have largely been isolated from the Internet industry downturn. ************************** many will trade at zero!