DSL rollback

Wall Street short-circuits network builds Skepticism about DSL players evident in the public and private equity markets surfaced again last week, and appears to be causing residual effects in equipment suppliers.

Feeling the pinch was Turnstone Systems, a developer of DSL software and equipment. After lowering fourth quarter revenue estimates to $38 million from about $56 million, Turnstone shares fell more than 60%.

Turnstone Chief Financial Officer Terry Schmid attributed the forecast gap to the funding problems of data competitive local exchange carrier customers and a European provider's "dramatic rollback" in plans to build a DSL network.

In the U.S., lack of access to capital and a cutback in financing activities by DSL access multiplexer vendors are causing many service providers to scale back their DSL network buildouts, Schmid said.

Network Access Solutions last week cut 23% of its work force - 145 employees - as part of its move to scrap a nationwide network plan and focus on the corridor from Richmond, Va., to Maine. In September, after pulling its IPO because of poor market conditions, Jato Communications said it was down-sizing its network buildout to focus on 12 secondary markets in 10 Rocky Mountain and Southwestern states, said Jerry Maglio, Jato's vice president of sales and marketing.And Lucent Technologies, an OEM customer of Turn-stone's, has toughened its lending criteria.

To improve profit margins, many DSL providers are moving away from wholesale markets to direct customer relationships.

"Owning a retail customer means we gain the revenue from the Internet-access side and the DSL transport side," Maglio said.

But first, DSL providers must survive on the crumbs they will receive from investors.

"There's no problem with demand or the technology," said Daniel Ernst, an analyst at Legg Mason. "The weak link in the chain is the financial markets."