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To: ChinuSFO who wrote (6642)	3/14/1999 5:20:00 PM
From: Jenne	Read Replies (1) \| Respond to of 41369

March 15, 1999 DSL Derby NorthPoint's a player in fast 'Net connections By Bill Alpert You want the world and you want it... now. Well, you can take delivery of its data two ways: By cable modem or by a telephone technology called DSL. Cable firms have gotten billions of dollars from AT&T and Microsoft to build Internet fast lanes over cable systems. Firms using a rival technology on phone wires, called "Digital Subscriber Line," are raising hundreds of millions in initial stock offerings. In January, Santa Clarabased Covad Communications sold 7.8 million shares at $18, to add $130 million to its war chest. San Francisco's NorthPoint Communications and Englewood, Colorado's Rhythms NetConnections have filed for IPOs of as much as $125 million and $165 million, respectively. DSL eliminates the bottleneck of copper phone lines, running data up to 25 times faster than traditional phone modems to reach speeds of 1.5 million bits per second. Some DSL techniques claim they can clock 7 megabits per second. Cable-modem services have signed more subscribers to date, with low monthly rates of around $40. But cable systems only pass about half the potential subscribers, mainly residences but few businesses. Copper wires are everywhere. Firms like Covad and NorthPoint will save themselves an aggregate of $200 billion by leveraging the wiring of established phone firms. In fact, this competitive local datacomm industry came into existence only after a 1996 federal law requiring phone companies to open their wires and switching facilities to rivals. DSL service firms, therefore, can focus their spending on access hubs and switches in central facilities -- and on marketing their services and stock. Covad was started by veterans of Intel with some seed money from that chip maker. In the year following its December 1997 service launch, Covad signed up 3,900 subscriber lines in six markets. Revenue in 1998 was all of $5.3 million and cash losses on operations were $30 million. But an impressive crew of telecomm biggies have put money in the firm, including AT&T, Nextlink Communications, Qwest Communications and Concentric Networks. Their investments, Covad's IPO and a subsequent sale of junk bonds has endowed Covad with over $500 million toward setting up service in 22 markets. The public's mobbed Covad shares like every Internet play, sending them as high as 61, before letting them settle at a recent 56. That's a $3.6 billion market valuation, or eight times the revenues forecast by BT Alex. Brown analyst Kevin Moore for 2002, the year he expects Covad to break even on a cash-flow basis. NorthPoint was founded by six datacomm executives from MFS, which was acquired by what's now MCI WorldCom. Its service is running in a dozen metro regions thanks to $130 million from loans and venture investors like Paul Allen's Vulcan Ventures. Investment bankers at Goldman Sachs and Morgan Stanley Dean Witter have yet to set a price range for NorthPoint's initial offering, but if the deal goes through, the public money and a $100 million credit line, should tide NorthPoint through 1999 as it builds out 28 markets. NorthPoint's 1998 revenues were under $1 million, with cash operating losses of $23 million. Even more embryonic is Rhythms NetConnections, with $300,000 in revenues, but the backing of MCI WorldCom and a team of investment bankers led by Merrill Lynch. Most of these DSL startups are pursuing a wholesale marketing strategy. After setting up shop, their service is resold by phone partners like AT&T, or by Internet service providers like Concentric Networks or Verio. These independent DSL businesses won't lack for copper-wired competition. Besides hard-charging private firms like HarvardNet, Dakota Services and Network Access Solutions, the DSL independents must compete against the phone companies whose plants they lease. Other potential rivals for Covad and NorthPoint are the competitive local phone firms like the MFS unit of MCI WorldCom or the newer Qwest and Level 3 Communications. Such firms have historically aimed at linking downtown skyscrapers with fiber optics. So the DSL upstarts have targeted smaller businesses and affluent homes, and allied themselves with the likes of MFS, which can't afford to run fiber to small customers. Space inside existing switching facilities is scarce, and a DSL aspirant can't get in the door without certification by state regulators and connection agreements with the local phone firms. So Covad, NorthPoint and the rest are racing to secure space in the thousand-odd switching plants in the best markets. The time and expense of getting in to local markets could actually benefit first movers like Covad and NorthPoint, by retarding the arrival of a DSL glut. There's one certainty. Once customers try high-speed Internet connections, demand will be huge, giving the first national DSL providers the kind of value enjoyed by the big pioneers of other new services like cellular phones.