...but there is a break in the clouds

New Edge deal expands MSN HighSpeed's footprint While DSL operators that focus on heavily populated areas continue to struggle in the stock market, New Edge Network's decision to target Tier 2, Tier 3 and Tier 4 markets was rewarded last week with an agreement with Microsoft to deploy the software giant's consumer DSL service.

Through the deal, Microsoft hopes to accelerate deployment of its MSN HighSpeed offering to the smaller markets and semi-rural areas served by New Edge after the beginning of the year. This complementary network combined with a solid service record helped secure the deal for New Edge.

"We like to have strong execution, just like the people at Microsoft," said Dan Moffat, New Edge's president, CEO and co-founder. "And in these troubled times with DSL, people want to work with someone with a proven track record."

Unveiled in late September, MSN HighSpeed is featured in RadioShack retail outlets. Currently, DSL deployment in high-population areas is provided by NorthPoint Communications, which Moffat described as a "good, strong partner for us." Consumers not within the NorthPoint service area are offered broadband service via StarBand Communications' satellite network.

By signing the deal with New Edge, MSN HighSpeed expects it will "immediately" increase the number of potential DSL users in its footprint by 20%, and this figure is expected to grow as New Edge expands its network, said Bob Visse, lead product manager for MSN.

"[The agreement with New Edge is] very important to our ultimate goal of providing multiple broadband options... to all consumers nationwide," Visse said. "Not many players have been able to market broadband services on a nationwide level."

Ensuring that consumers have access to broadband is critical to the future of Microsoft, which is investing heavily in users' ability to download bandwidth-intensive software easily enough to make its application service provider model thrive.

Unlike many broadband providers, Microsoft is not married to a single access technology. While DSL and satellite links are MSN HighSpeed's current transmission modes, the company is monitoring the cable and fixed wireless industries for opportunities, Visse said. "We're keeping our options open," he said.

Meanwhile, the timing of Microsoft's entrance into DSL has been fortuitous, Visse said. "It does appear that, in light of the financial markets today and the squeeze [on capital for DSL providers],... it could stand to benefit us," he said.

Microsoft has not made any MSN HighSpeed subscriber numbers public, but "we've seen a good demand for the service and see that demand growing," he said.

That demand continues to fuel Moffat's long-term optimism about the future of New Edge, which has not been immune to the struggles of DSL providers. Even after closing a $139.9 million funding round in October, earlier this month New Edge was forced to curtail its buildou plans and cut 135 jobs - slightly less than a third of its work force - to stretch its available cash. The company cited lack of funding availability from the public equity, high yield and senior bank debt markets as the main reason for its decision.

"We made the judgement that it was in the best interest to make our cash last as long as possible until one or more of these markets comes back," said John Hesse, chief financial officer for New Edge. "Our goal is to extend our life."

Like many DSL providers, New Edge has scaled back its expansion plans in an attempt to stretch its capital resources, Moffat said. Instead, "we are focusing on improving our penetration in the areas we currently serve."

While this represents a change in plans, Moffat said New Edge is well-positioned for the current DSL shakeout because it should not receive any new competition since no one can afford to expand their services to the areas occupied by New Edge. In addition, its ISP customers also should not face much new competition, meaning they should be able to pay their bills - something that has plagued other DSL providers.

Meanwhile, trying to build a profit-based business that will appeal to investors should benefit New Edge in the long run, Moffat said. "It's a tough time for all of us, but it may have a silver lining."