DSL providers holding out for a hero

(Upstart) With all the carnage in the DSL industry of late, that segment of the world is looking for a savior. In particular, NorthPoint, which declared bankruptcy earlier this month, is looking for a buyer. But in general, an industry that has been littered with bankrupt DSL providers of various sizes and scopes is hoping for a consolidator to sweep up the whole mess.

Some people think of Qwest as a likely candidate to roll-up DSL players, maybe even buy one of the major DLECs: Covad, NorthPoint or Rhythms. One reason is that Qwest has vowed to make DSL its top priority this year. Another is that Qwest’s CEO Joe Nacchio has a penchant for ballsy acquisitions—in 1999, Qwest acquired mammoth RBOC USWest in 1999 through a hostile $55 billion bid that beat out Qwest’s rival Global Crossing.

Buying one of the DLECs would cost a few billion dollars, but when Qwest has some money to spend, what does it do? It buys $1 billion worth of its stock back from Bell South. This doesn’t necessarily hamper Qwest—which reported pro-forma EBITDA of $7.4 billion in 2000—from buying out one of the DLECs.

What it does do is give Bell South a quick billion dollars, which raises the question of whether Bell South itself has its eye on any ailing DSL providers. Many consider RBOCs to be the most likely suitors for DSL consolidation, and Bell South has proven its ability to sell DSL, having surpassed last year’s subscriber goals to win 215,000 subscribers. Bell South’s parent, SBC, fell short of its goal to sell one million DSL lines last year, and Prodigy, which was to become the RBOC’s DSL sales channel, hasn’t performed as well as SBC might have hoped.

As stocks slide and DSL resellers go bankrupt, prices for DLECs should get lower and lower. All the while, the industry waits for someone with the initiative, the capital and the ambition to make their move.

Senior writer Ed Gubbins is also waiting for initiative, capital and ambition. E-mail him at ed_gubbins@intertec.com.