The Case of the Disappearing DSL

Greetings, all:
One factor that is crucial to application service provider (ASP) adoption is the availability of broadband access. Although broadband concentration in heavily urban areas is fairly high, recent events make it appear that even urban users can't always count on the technology. Let's take a look at the recent string of events.

November 2000: Verizon Communications decided not to buy a 55-percent stake in NorthPoint Communications Group.

January 2001: NorthPoint declared bankruptcy and applied for Chapter 11 protection.

March 22: NorthPoint sold its assets—but not its customers—to AT&T for $135 million, an estimated quarter of their value. An ISP consortium headed by Telocity, a California-based ISP, said it would raise money to prevent NorthPoint from shutting down DSL during the next month.

March 23: Cracks began to appear in Northpoint DSL offerings. AT&T explained that it's interested in consumer connectivity, not the wholesale Digital Subscriber Line (DSL) market. MSN and some other NorthPoint ISP customers reportedly contacted their subscribers to warn them of an imminent shutdown, but some customers said they didn't receive any notice.

March 26: NorthPoint ISP customers started offering compensation to their customers and competing companies began wooing end users of Northpoint's DSL services. Telocity, one of NorthPoint's California ISP customers, announced that it would give customers who lost DSL service 1 month of free DSL after it found another provider but that it could take 4 to 8 weeks to transfer service. Microsoft said it would provide 6 months of free dial-up Internet service, a $25 gift certificate for MSN's shopping channel, and a refund on the $149 modem the service used. Verio, another NorthPoint ISP customer, said it would give its customers 60-day dial-up accounts. Covad Communications, a former NorthPoint competitor with its own financial troubles, offered to waive installation fees for ISPs that could switch customers over easily to its services. Covad also offered rebates on new modems for NorthPoint subscribers who sent in their old DSL modems.

March 27: The DSL offering disintegrated further. NorthPoint announced that if it couldn't raise enough cash to keep going, the company would have to discontinue service in the next few days. Several companies, including New York-based MPower and California-based GotBandwidth.com, offered to pick up former end customers of NorthPoint's DSL service.

March 28: Telocity complained that a last-minute move by NorthPoint Communications and its bankers to extract additional funds from the ISP consortium jeopardized the consortium's efforts to keep NorthPoint's network active for the next month. NorthPoint's bankers alerted the consortium that the $2.4 million the consortium promised wasn't sufficient to fund network operations another month, and NorthPoint said it couldn't guarantee the network's operation for that long.

March 29: NorthPoint said it would shut down its network. Service stopped in parts of the Bay Area. The California ISP Association filed an emergency motion asking the California Public Utilities Commission (CPUC) to block NorthPoint from canceling the Internet access of 40,000 California Internet users.

March 30: The CPUC scheduled a hearing to consider a request for a temporary restraining order. Although the CPUC ordered NorthPoint to continue service on the principle that the company is a public utility, the company said that it would be "nearly impossible" to do so, and as of April 2 California customers who lost service still don't have it.

Who's to blame for this failure of DSL service? NorthPoint? AT&T? The ISPs who didn't alert their customers (and I'm assured that some didn't)? To a degree, it doesn't matter. The end result—100,000 business and residential customers in danger of losing broadband access for about a month—doesn't change, and even CPUC's order to turn the service back on didn't restore it.

And there's the rub. Widescale ASP success is predicated on broadband availability. If customers fear losing their broadband access for a month or more, they won't be enthusiastic about putting their applications and data at the other end of that broadband connection.