DSL pains reach end users

Just when it seems the situation can't get much worse for DSL providers or those using the technology, it has. Although DSL may have been a dream for users desperate for high-speed access and their respective service providers, it is quickly turning into a nightmare.

In steps that have been painfully public, NorthPoint Communications' demise ended in bankruptcy, and AT&T purchased the fallen company's equipment. And the financial difficulties of other data competitive local exchange carriers (CLECs) such as Rhythms NetConnections and Covad Communications have been worsening as well.

Rhythms kicked off the week with news that it had hired investment banking firm Lazard Freres & Co. to explore its financial options, including potential sale of the company, sale of assets or a merger. As a premonition of what the future may hold for Rhythms, NorthPoint also reached a point of soliciting the sale of the company or assets before declaring bankruptcy.

But in a surprising step, Rhythms' chairman and CEO Catherine Hapka announced last week that she would leave the company she founded. A Rhythms spokesman would not elaborate.

In addition to the plans to sell the company and the loss of the CEO, Rhythms was also dealt the crowning blow of an impending delisting from the Nasdaq stock exchange — another event that was part of NorthPoint's last days.

“NorthPoint is gone. Rhythms has to be on some kind of respirator, and Covad is not far behind,” said Michael Mael, executive vice president of Focal Communications' data communications business.

Now that NorthPoint has shut down its network (see story on page 15), the fate of its customers — end users and ISP resellers — remains in question. With Rhythms apparently not far behind, its customers likely are also in jeopardy.

“Customers don't care what the problem is; they just want their service restored,” said Dave Baker, vice president of law and public policy for EarthLink. “If [an ISP is] relying on CLECs, you better have a backup plan so you're not scrambling the morning after one of them files for Chapter 11.”

But backup plans are easier said than done. For example, unless a new provider wants to negotiate access to the old NorthPoint DSL access multiplexers through AT&T, the provider must create a new link to its own DSLAM.

Still, other providers are volunteering to help displaced customers in hopes of winning them. Ironically, Rhythms was rumored to have been bidding to buy the NorthPoint customer base.

“Can you imagine how irritated you would be if you were a NorthPoint customer that was transitioned over to Rhythms, and they went out of business, too?” said Kathie Hackler, vice president and chief analyst at Gartner.

But many customers — especially those with symmetrical DSL (SDSL) connections not supported by incumbent LECs (ILECs) — may not have many options besides seeking shelter from another independent DSL provider.

“Once you have had a broadband connection, you won't go back to dial-up,” said Chuck Haas, general manager of Covad Integrated Solutions and one of the company's founders. “And for small businesses, DSL is the only game.”

Covad has offered to take on some of the stranded customers and transition them for free.

Considering Covad's fiscal health is in flux — its stock price plummeted below $1 per share — the idea of assuming transitioning and equipment costs sounds questionable. But according to Haas, those customers would be acquired for free.

“We have zero marketing costs of customer acquisition [with the NorthPoint] customers, so we take what we usually have to spend on acquiring customers to transition them,” Haas said.

To transition ISP customers in bulk, Covad orders second loops under the standard process it has used many times before, Haas said.

But Covad isn't the only company eyeing NorthPoint's marooned customers. Incumbents may stand to gain the most, as customers may have become leery of working with data CLECs — another sign that competition sought in the Telecom Act of 1996 is not being realized.

Verizon is not taking down the circuits to help keep the customers up while they are transitioned to other providers, but that doesn't mean another cog in the chain — such as the backbone provider — won't shut them off. According to a Verizon spokesman, most former NorthPoint customers use SDSL, which Verizon doesn't support. That, in turn, forces customers to consider options such as ISDN or T-1s if asymmetrical DSL (ADSL) isn't wanted.

BellSouth also wants former NorthPoint customers but faces SDSL problems.

“It is definitely not as simple as transitioning over something like a POTS line,” said Eric Fogle, BellSouth's director of wholesale marketing and development. “A lot of those customers will suffer through outages. And since we use ADSL exclusively, we will have to do things like change out the CPE and reconnect to new facilities.”

Whether the gains come from new DSL or T-1 customers, incumbents are the winners in the DSL fallout, according to Peter Meade, managing partner of Teleresearch Inc.

“The ILECs will be able to benefit greatly from all of this.”

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Glenn Bischoff and Jim Barthold contributed to this report.