|
It's a broadband tale that might have been spun by Dickens - or Aesop.
The dawn of 2001 finds the digital subscriber line market moving slowly ahead, heavily chained by failed or near-failing competitive service providers - the same group that powered a rollout spurt in 2000.
In the end, the fate of these providers may retell the story of the tortoise versus the hare. The competitive DSL carriers, who sprinted out of the gate with the promise to bring the technology to the masses, are now suffering an abysmal winter freeze that is straining their squirreled-away financial resources.
Market values for nationwide leaders Covad Communications Inc., Rhythms NetConnections Inc. and NorthPoint Communications Inc. have hit penny stock ranges, while large and small fry alike are experiencing bankruptcies, layoffs and investor wrath.
Then came the regional Bell competitors. Though slow at first to roll out DSL, in the past year they ramped up high-speed data deployments. While not exactly market darlings, they are recording strong new subscriber increases, positive earnings per share and stock prices still in the double digits.
Why the difference? Granted, much of it has to do with the Bell operators' deep pockets and existing customer base. But analysts also point out that within their DSL operation, they own and control their own lines, directly brand their service and don't rely as much on third-party ISPs, some of which have had trouble paying their bills to the competitive carriers.
Jason Marcheck, an analyst for Strategis Group, sees physical line ownership as a key in the battle. Armed with their own networks, ILECs have become the more adept at lighting up new customers.
"Obviously RBOCs have something of an advantage if a customer is looking for speed of installation," he says. "RBOCs are getting somewhat better with self installation and in line provisioning because they provision and test their own lines. CLECs are at a disadvantage there. They are still at the mercy of RBOCs in that respect."
While competitors also can do line testing and offer self-provisioning, dealing with incumbents who may be slow to activate circuits is "just the cost of doing business if you are a CLEC," Marcheck says.
It also doesn't help that the competitive DSL sector has lost favor with capital markets no longer perceive viable business plans, according to John Page, an analyst for Moody's Investor Services. Covad, NorthPoint and Rhythms are all "reassessing the strategy of their customer base," he says. "All three of them are trying to hunker down and wait out the market."
Their reliance on equally struggling ISPs is also a huge disadvantage. Page says. By comparison, the Baby Bells sport a self-branded consumer product under their own in-house ISP. "We are seeing some stress situations with ISPs with some of the smaller ones going into bankruptcy," Page says. "The DLEC business model is a tough one in terms of credit control."
Page also points to inherent flaws in the DLECs' reselling game, which pushes service through a branded ISP. That not only diverts revenue to the ISP, but also leaves the customer with no real relationship to the DSL provider.
"In most cases the DLECs do not own their customers," Page points out. "In order to keep going, they have to keep the end user serviced even if the ISP isn't paying."
Without that crucial plank, Page doesn't think DLECs can continue for much longer as pure resellers. He points out Covad already has moved into the direct sell with its purchase of ISP BlueStar plus its program to transfer customers from troubled ISP partners to its own Internet service, Covad.net.
"The traditional DSL DLEC model is kind of a limited-window market," Page notes. "The past couple years has been a window for providers of transport. What they've been trying to do more is move the customer relation to a higher value proposition."
With the ownership of the network and control of line provisioning, the resident Bell operators effectively have been closing that window, Page says - and that means the once-nimble DLECs may actually have to catch up to the slower-moving ILECs in the direct sales market.
What happens then? Maybe only Aesop knows the answer.
|
