For those interested in DSL....
DSL: With Friends Like This, Who Needs Enemies?
By Jim Seymour
Special to TheStreet.com
12/29/00 11:48 AM ET
It started with an early-morning post Thursday to the RealMoney.com Columnist Conversation board. I'd noticed Thursday morning's long-wheeze story in The New York Times, on the difficulties consumers and small-business people were having with their DSL Net-access service.
Big surprise, huh?
The Times story (D.S.L. Service for Linking to Internet Is Problem-Ridden) focused on the efforts by the three providers -- NorthPoint (NPNT:Nasdaq - news - boards), Verizon (VZ:NYSE - news - boards) and XO Communications (XOXO:Nasdaq - news - boards) -- to duck responsibility for getting a customer's service restored. And it included this gem from a NorthPoint spokesman:
"We don't have time to comment on individual cases like these. Our highest executives are just struggling to keep the company alive, that is their most important objective at this point."
Umm ... OK.
That post kicked off a daylong flurry of emails from RealMoney.com subscribers. Many just wanted to tell their tales of woe to someone who'd listen -- listening not being a common trait among DSL providers' customer-support people.
Others found in that NorthPoint spokesman's words the seeds of everything wrong with the DSL business today: A go-to-hell attitude about customers' problems and the failure of way too many DSL installations.
But many asked about the continuing viability of the DSL business, whether there were inherent flaws in DSL technology, whether DSL stumbles will give the cable-modem world an unexpected boost. And, of course, how to make, or at least save, money in this debacle.
I see DSL crumbling in front of our very eyes. Although I've complained long and loud here about the half-witted, intentionally limited ADSL flavor of DSL being rolled out by many regional Bell operating companies and their competitive local exchange carrier partners -- it doesn't save the companies the money it was supposed to, because its big supposed advantage -- that it's so easy to hook up that customers can do that themselves -- well, I'm not going to go on that Molson Rant again.
In fact, ADSL works just fine if, usually, too slowly, and at too high a monthly charge -- and if the regional Bell operating companies could just get it installed and support their customers, it would be fine.
Aware (AWRE:Nasdaq - news - boards), the principal supplier of ADSL technology, has proved that ADSL works just fine. Even at far higher speeds than the throttled settings the regional Bell operating companies are peddling today.
The problem isn't the technology: It's the business ineptness of at least two layers of DSL providers. On the top level, RBOC country, phone companies still just don't get it that DSL could make a nice contribution to their bottom line ... and that selling DSL is absolutely essential to their economic health.
The Verizons of the RBOC world continue to stumble forward, not supporting second-tier companies that in most cases actually sell, install and (theoretically) support DSL connections. Excepting only SBC Communications (SBC:NYSE - news - boards), which has made a halfhearted commitment to something called Project Pronto, which is supposed to accelerate DSL rollout to SBC customers -- the RBOCs are screwing-up DSL big time. And even SBC is now moving much slower on DSL than it had said it would. Maybe it should rename it Project Alto.
Ratchet down to the competive local exchange carriers that are actually selling and installing DSL connections -- the Covads (COVD:Nasdaq - news - boards), DSL.Nets (DSLN:Nasdaq - news - boards) and NorthPoints of the world -- and you find companies grievously injured by their own actions in a world which expects at least some return on its investments. Covad, which I had earlier recommended as a good bottom-fishing play, now trades just over a dollar a share ... and it's doing better than most of its peers.
In fairness, these DSL competitive local exchange carriers ran into two problems they had not anticipated. First, the hostility shown toward them by the regional Bell operating companies has been much worse than expected. The RBOCs are famously unresponsive to the CLECs' need to get quick action in the regional Bell operating companies' central offices, in which DSL lines begin.
Worse, the financial ground shifted under their feet. As Chuck McMinn, co-founder of Covad, said, "The financial markets went from wanting growth to profitability." Well sure, Chuck. Surprised?
The CLECs, organized around growth as their mantra and business model: Grow fast today, make money tomorrow ... we hope -- were blindsided when a wary, edgy market started asking embarrassing questions about their path, and timeline, to profitability.
The result is that Covad is down to around a buck and a quarter from $66-plus; NorthPoint has fallen from the mid-$30s to around a quarter a share today; and DSL.Net has plummeted from $32.56 to about 50 cents.
The net effect has been to give cable providers a big advantage. Today about three times as many homes have cable-modem Net access as have DSL Net access -- about 3.5 million cable-modem homes vs. only about 1.2 million DSL homes.
The market forecasters had assumed DSL would quickly close that gap -- a widely quoted forecast from Jupiter Communications had projected about 13.8 million cable-modem subscribers vs. 11.2 million DSL subscribers by 2005 -- but now that seems impossible. Or at least highly unlikely anytime soon.
In fairness, one technical issue hobbles DSL sales: Your installation location needs to be within about three miles of a central office switch or you won't be able to get DSL service. By one guess, that excludes about 40% of all homes and businesses from the DSL market. (And that three-mile distance can be deceptive: it's not as the crow flies, but as the cable is laid, which can be a twisted maze, effectively reducing potential DSL service areas even further than a look at a map suggests.)
Still, 60% of U.S. homes and businesses is a fat market. And it's a market that is slipping away to other technologies, from cable to fixed wireless to satellite service, day by day.
DSL's not going away. French DSL technology provider Alcatel (ALA:NYSE ADR - news - boards) has some sensational DSL technology in the pipe, and from its U.S. base in the Dallas-area telecom corridor is pushing hard to wake up U.S. regional Bell operating companies. If those former Bell companies listen, and if the market will keep a few of the stronger competitive local exchange carriers (a contradiction in terms?) alive, we may yet see a recovery in DSL.
The patient is sick, in critical condition and declining, but not yet comatose. If you're following the DSL market, as an investor or as a potential customer, don't give up hope. But say some prayers. Fast.
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I'll be back this afternoon with a look at what some consider the hidden factor in the cable-vs.-DSL contest: cable-access' widely rumored vulnerability to hackers, and a tip on how you can protect yourself from the bad guys on your cable connection (or indeed, any fast-access connection) ... entirely for free.
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Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, neither Seymour nor Seymour Group held positions in any securities mentioned in this column, although holdings can change at any time. Seymour does not write about companies that are, or have been recently, consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites you to send your feedback to Jim Seymour .
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