DSL bloodbath continues

By Michael Martin
Network World, 12/08/00

A trio of competitive DSL providers this week announced plans to scale back their operations, the latest setbacks for a market that increasingly looks as though it will be dominated by the Bell companies.

The bad news for competitive DSL firms included:

HarvardNet, which operates in the Northeast and Mid-Atlantic regions, revealed that it will cut about 280 employees - more than half of its staff - and exit the DSL business. The company now plans to concentrate on Web hosting and managed services.

NorthPoint, which had its intended merger with Verizon scrapped by the ILEC two weeks ago, announced it would lay off 248 workers - about 19% of its workforce.

Zyan, a Los Angeles firm, filed for Chapter 11 bankruptcy protection and is laying off about 160 of its 230 employees.

These announcements came a week after DSL.net announced it was laying off 141 employees, about 28% of its workforce, and reining in its network expansion.

Competitor Covad announced two weeks ago that it was cutting 400 positions and halting its network expansion at 2,000 central offices.

Mark Washburn, HarvardNet's CEO, says building out DSL networks and maintaining ongoing DSL operations is proving to be too capital intensive at a time when funding is drying up and DSL stocks are getting hammered on Wall Street.

"It's a very difficult environment to operate in right now," he says.

The three biggest competitive DSL providers - NorthPoint, Covad and Rhythms - have seen their stock prices fall precipitously over the course of 2000. As of 3 p.m. Thursday, not one of their stocks was worth more than $2.

Washburn notes that Rhythms, which has the most cash on hand of any of the DSL providers, is about the only major provider not to announce job cuts or a scaling back of operations.

HarvardNet is currently working to transition its several thousand customers to other DSL providers, Washburn says. The company was still working on the transition plan's details at press time.

Despite all the problems in the DSL market, Adam Guglielmo, an analyst with telecom research firm TeleChoice in Denver, believes providers that execute properly can succeed.

"Too many companies came into the market with the same idea," he says. "They were worried about starting a buildout quickly and worrying about profit long-term."

One key to success is building effective customer service, provisioning and billing infrastructures, which many of the DSL providers didn't do, Guglielmo explains.

Another key may be offering value-added services to make up for the falling DSL transport prices, he says.