Optimism remains despite DSL flame-outs

By Michael Martin, Network World |  Business

It's hard to ignore the flood of bad DSL news in recent months -- including last week's revelations that NorthPoint Communications has filed for Chapter 11 bankruptcy protection and Rhythms NetConnections is laying off about one- quarter of its staff. But industry watchers say DSL remains a solid option for companies looking to connect remote workers or branch offices to the Internet or a private network.

Sure, customers will need to select service providers carefully given that more of them are bound to implode in the weeks and months ahead as cash runs low and network build-outs stall. But customers who choose wisely should benefit from DSL's current strong points, such as its relatively low cost and high speeds vs. T-1 lines and other services, as well as better offerings from the Bells and improvements in service provisioning.

The downfall of DSL providers in recent months has been well-documented. The capital markets stopped funding the massive network build-outs of companies such as Covad, NorthPoint and Rhythms, which have installed equipment in a combined 5,400 central offices, but have either laid off or announced plans to cut some 1,500 employees between them to save their businesses.

"A lot of the service providers when they were building out their central offices focused on a land grab, putting equipment into as many places as they could, and the market was willing to support that," says Frank Weiner, a vice president for DSL equipment supplier Paradyne. "But the markets changed and became more interested in profits."

Nevertheless, last year was actually a banner year for DSL growth. The number of DSL lines installed in the U.S. more than tripled from the year before to 2.3 million, according to market watcher TeleChoice.

A recent FCC study showed there are nearly three times as many cable customers as DSL customers as of last June, but indicated DSL is gaining quickly. The study cited a Wall Street report forecasting that DSL customers will outnumber cable modem subscribers 10.1 million to 9.1 million by the end of next year.

Bell companies are among those showing solid growth in their DSL businesses. BellSouth and Verizon beat expectations for DSL installed lines last year. BellSouth topped its goal of 200,000 lines by 15,000. Verizon was above its 500,000-subscriber goal by 40,000.

Even some competitive DSL providers showed gains. New Edge Networks of Vancouver, Wash., says its DSL orders increased more than 60% from November to December, in part because business DSL customers were fleeing failed or struggling providers.

Intermedia Communications, a competitive local exchange carrier (CLEC) that sells business-class DSL services as a partner of DSL wholesaler Rhythms and is being bought by WorldCom, announced in December that it would expand from 12 metropolitan areas to more than 1,300 U.S. cities.

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