Verizon takes NorthPoint to make national DSL move

By Tim Greene
Network World, 08/14/00

NEW YORK - Just as TV ads featuring actor James Earl Jones are broadcasting the message that the merged Bell Atlantic and GTE are now called Verizon, the new company is moving on to significantly boost its broadband offerings.

The company last week announced plans to take control of NorthPoint Communications, giving it a national and international DSL network that supports broadband VPNs as well as voice, video and data services over one phone line.

This is good news for enterprise customers seeking DSL services because it gives NorthPoint, which has focused on serving business customers, the huge financial resources of Verizon, which has focused on residential DSL services.

"Verizon's marketing and advertising budgets will enable NorthPoint to do more with its infrastructure than it could have hoped to do on its own," says Carl Garland, an analyst with Current Analysis in Sterling, Va.

Verizon says $450 million of its $800 million NorthPoint investment will be used to upgrade NorthPoint's network.

NorthPoint, a DSL start-up formed in 1997, has installed DSL gear in 1,500 local phone company offices across the U.S. Verizon has installed DSL equipment in 1,700 of its switching offices limited to the Northeast. There is some overlap, but when the deal is completed sometime before mid-2001, the two will have presence in 3,500 to 3,700 separate switching offices, according to Liz Fetter, NorthPoint's CEO. Verizon will also share in a new European DSL joint venture called Versatel.

This deal throws Verizon into competition with AT&T, which is racing to upgrade its cable networks so it can offer bundles of high-speed local access services, Garland says. Verizon might have the edge because DSL technology is more stable in production networks than cable networks made up of fiber-optic and coaxial cable.

The deal is a blow to other major DSL specialists, Covad Communications and Rhythms NetConnections, says Claudia Bacco, a DSL analyst with TeleChoice, a telecom market research firm in Boston. The companies have aspirations to serve business and residential customers, but lack the money to do so rapidly on a large scale, she says.

Covad started as a wholesaler and is trying to add retail DSL services to its line via the purchase of BlueStar Communications. NorthPoint is gaining a much more powerful retail force by aligning with Verizon, Bacco says. Rhythms has been selling retail and wholesale on its own.

Covad and Rhythms face the same fate of being snapped up by other larger carriers, says Robert Rosenberg, president of InSight Research, a telecom market research firm in Parsippany, N.J. These DSL carriers have pushed the technology and developed networks faster than regional Bell operating companies could have done themselves, and RBOCs will take them over as they need them, he says.

"These [DSL carriers] give the RBOCs a customer base at a lower cost than they could assemble it for themselves," Rosenberg says.

Already SBC Communications, the other super-RBOC, has invested $150 million in an East Coast DSL service provider, Network Access Solutions (NAS). NAS offers a geographical complement to SBC's DSL services offered in mostly Midwestern and Western states.

Despite the merits of the deal, Wall Street reacted unfavorably to Verizon this week, with the stock price dropping nearly $7 in the three days following the announcement. the company's revenue was less than investors wanted for the second quarter, and Verizon was also in the midst of a strike by more than 80,000 workers.

Verizon: www.verizon.com