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Technology Stocks : LAST MILE TECHNOLOGIES - Let's Discuss Them Here -- Ignore unavailable to you. Want to Upgrade?

To: VIXandMore who wrote (3547)	5/5/1999 9:03:00 AM
From: Frank A. Coluccio	Read Replies (1) \| Respond to of 12823

Bill, Thread, this is a little off topic, but related in a way to the discussion of data CLECs, or DLECs, as they are increasingly being referred to. A VP level counterpart of mine within one of my clients' operating units approached me yesterday concerning "some new technology called xDSL." It's seems that xDSL is creating an enormous amount of buzz within this top-5 institution, and they will be exploring it for its value in "all sorts of countless ways." Why would a twelve-figure financial firm be interested in DSL? This in some ways relates back to the possibilities presented yesterday here, w.r.t. the ComDisco offerings, and ways in which commercial subscribers (as opposed to the couch potato) might gain from DSL services. They have thousands of ATM [machines] on their net, for starters. If that weren't enough, some fifteen thousand employees who either part- or full- time telecommute. At the present time they are using ISDN, and in some cases 56k. There are thousands of correspondent endpoints from orgs who attach to their nets for EDI and extranet (e-commerce) reasons. Many of those are independents working from home or small offices. And they have millions of clients who bank, stock trade and insure with them, who are coming on line at break neck paces, to become a part of the next wave of doing both commercial and personal business on the 'net. One of the guys I've helped at times with their interstate private SONET network has been "getting calls from every which direction" from firms they've never heard of, before... Rhythyms, COVAD, SBC (related to the firm's southwest and west coast operations), and others. "What do you make of this?" We got to talking about how I might be able to help him if he runs into a marketing cross-fire, since the issue he's bringing up at this time is outside of my purview of my relationship with them right now. And I got to relating to him a story I'd heard of about one mom-and-pop ISP. This small operator recently got themselves into trouble as a reseller/agent for one of the current DSL power houses being discussed here on this thread right now. It seems that this once dialup-only 33.x kb/s operation went overboard in their marketing of this new, "always on" dsl offering, and they've succeeded to the point of selling so many new accounts that their servers and route fabrics have ground to a stall. That is, they have oversubscribed their resources to the point they are overwhelming their own ability to deliver (or to pull down data) on the back end of their POP from their upstream provider. [This should serve to understand the perils that cable modem operators and other DSL providers may face, too, at some point, if they don't properly lay out their network designs adequately and make the proper provisions, going forward.] Where they were once delivering limited, but acceptable from a perceptual standpoint, service with only two T1s going upstream, they now find it necessary to increase the size of that pipe to a fractional T3, and as they become more successful they'll likely need to increase the size of that pipe (and their routers and other ancillary interfaces) proportionately to T3 and beyond. The interesting question to contemplate at this point is, does the incremental fee garnered by the sale of the DSL accounts cover the increased costs of the T3s and other infrastructure that they are buying themselves into? My first unqualified assessment based on the relatively high costs of DSL, still, and the margins that I assume that are available for commissions to the ISP, would be, no. Without specific knowledge of their financials, and their other revenue streams, I tend to think that they won't have the economies of scale necessary to carry the increased burn rate associated with the higher-capacity pipes toward the NPSs/core, and the captial costs of adding infrastructure. Which simply points back to the old refrain, that going forward in this game, no matter what the service type is, it will require greater levels of scale in order for these outfits to remain afloat, let alone prosper. Greater tolerances to absurd P/Es, valuations and burn rates notwithstaning, learn the significance of, and how to analyze, EBITDAs going forward. Earnings analyses are some ways off for these guys.