In the Trenches
DLEC sees, accepts rocky landscape
from the June 18, 2001 issue of Broadband Week
As the telecom industry hit the midyear point with SUPERCOMM 2001, competitive carriers were surveying the wreckage of the past 12 months. The capital market crunch and an overall business shakeout pinched many and raised questions about who will be left standing at this time next year.
DSL.net still thinks it will be in that group. The New Haven, Conn.-based company, which sells DSL service to small and medium-sized business customers across the United States, had 16,275 installed lines at the end of the first quarter this year and is shooting for up to 30,000 by year's end. Like most other competitive providers DSL.net is looking for more funding to carry it into next year.
Leading the company is Keith Markley, DSL.net's president and chief operating officer, who as a two-time member of the New Hampshire statehouse and top regional executive of Covad Communications knows the current regulatory and economic dynamics surrounding competitive providers all too well.
Markley recently spoke about the competitive landscape with Broadband Week associate editor Evan Blackwell.
BW: This hasn't been an easy year for the CLEC/DLEC business. What's gone wrong?
Markley: We went through just an explosion of investment capital in '98, '99 and the beginning of 2000 that created such a high volume of players running into the industry and mostly focused on land grab mentality to build the biggest networks the fastest. When we started experiencing the capital dry-up in the mid-part of last year, many of the companies just found themselves exposed with burn rates and business plans that anticipated being able to go back to capital markets.
BW: How significant a setback was NorthPoint's demise, from an industry credibility and customer relations standpoint?
Markley: The situation surrounding NorthPoint is reasonably complex. I think depending on who you talk to, you will get differing opinions on why the demise happened. I think anybody that follows it closely will tell you it wasn't just a pure market situation.
The real issue is what sets us apart ... we're organized very differently from how a company like NorthPoint was. We're a company that tends to follow a more traditional financial structure and we're more conservative in the way we've built and run our company. We've built it not on the concept of a land grab, but on the concept that you need to sell products and services at rates in which you can be fairly compensated for providing them.
BW: So what will differentiate DSL.net from the likes of NorthPoint, Covad, or Rhythms?
Markley: If you look across the United States, we're different from just about every other player in the fact that we're national and we're facilities-based. We're an ISP and a tier one ISP, so we provide the services. Not only do we sell access like some other DLECs, but we also provide the enhanced services ourselves. Also, we sell directly to the end user as opposed to wholesale through other channels. When you add up those components, there isn't anybody else that looks like us and that's the reason we believe that we're seeing a level of success in both sales and retentions of customers that other people are failing to see.
BW: DSL.net's first quarter numbers essentially met most analyst expectations, although the company still had a significant loss. How does the company go about becoming fully funded through EBITDA break-even in the current capital market? How soon does the funding have to come before DSL.net is forced into decisions it doesn't want to make?
Markley: Our position regarding the funding situation is that we're out seeking additional funding. It's something that has management's attention. We've also publicly stated that we're a company that's in a unique position because of the fact that we have very little debt on the balance sheet. We have options available to us that are not available to companies trying to figure out how to carry a large debt.
BW: A lot of industry observers say that DSL providers will need to get creative with their service offerings to survive. What types of services are your business customers looking for in the future? Will voice over DSL become part of DSL.net's plan?
Markley: We're in agreement that enhanced services and additional services are a sound part of a good business plan. We believe the access service part of what companies like ours do is still a very, very material part of the business and it shouldn't be abandoned. That said, when looking at enhanced services what we're finding from our business customers is that they're looking for, in many ways, some of the services that are often thought of as traditional by high-performing ISPs. To give you an idea of what we do, we offer the host of e-mail, Web hosting and security. Another service that we've recently launched that we think is going to be in very high demand is backup and real-time storage activity going on at businesses.
When you look down the road, if you look at our existing financial plans, revenue from VoIP is not part of the existing plan. We have a strong part of our leadership group that comes from CLECs, people that have put in Class 5 switching and offered voice services. So it's our position that as soon as we believe that VoDSL is a strong, stable product that we can offer to our business-class customers and have the same type of reliability that people expect from current telephony grade, we believe that we'll be in a position to offer it as fast as anyone else. When the time is right, we'll be in the game.
BW: There's seems to be a perception in some industry circles that because DSL doesn't have a de facto interoperability standard like DOCSIS in the cable world that deployments have been hindered. Are there any standards issues still plaguing DSL?
Markley: It's sort of funny, because I've been asked the question a bunch of times over the last couple months but I don't actually know anyone that runs one of these companies that I've ever heard say that standards have hindered us. There's business issues that you deal with in deploying and operating a large-scale, national data network. But if you were to pick the top 10 issues that we wrestle with on a day-to-day basis, standards is definitely not there.
BW: Are the incumbent local exchange carriers actively slowing progress and advancement in the DSL space for the competitive service providers?
Markley: I don't believe, and it has never felt like, incumbent providers have ever done anything. You don't feel like they're trying to help you along. I think the relationship often feels as if they're competitive, but the fact is that anybody that's been in the business should be building in the hurdles they have to deal with the ILECs as part of their business plan. At DSL.net, we do that. We understand the part that we have to wrestle with and therefore we get through it. If you summarize it (as), "Do you feel like they're going out of their way to help you?" then no. Is the action they're taking right now going to stop us from exceeding or meeting our plan, the answer is no also.
BW: You're a former legislator, what are your thoughts on the regulatory environment surrounding telecom right now? What is the broadband industry facing with Tauzin-Dingell?
Markley: Tauzin-Dingell is sort of a step backwards away from competition. In most political environments, you're going to have certain people that are pro-monopoly and certain people that are pro-competition. Tauzin-Dingell's effect is not as material on us, as it is on the entire fabric of the industry. Our general position is anything that moves back toward monopoly type of laws are wrong. We do not support the bill. We think it's a step back to the monopoly world, and we think it would have those effects on the services.
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