Of course, those same CLECs also will tell you one of the reasons why they're going out of business is because the ISPs are falling down like card houses and not paying their bills. All that when, according to Marc Harrison, research director of Jupiter's Custom Strategy and Research group, business-to-business net infrastructure spending in the U.S. will grow from US$2.1 billion in 2000 to $80.9 billion by 2005, translating into "huge revenue opportunities for technology and services enablers."
I don't know about his numbers, but I do know that even with its installation woes, DSL is hotter than hot. It's far more secure than cable Internet, far cheaper than frame relay or a T1, and you can use the same plain old telephone service (POTS) line for voice. Heck, with Voice over DSL you can use that one line to supply all the voice needs for a small business. For customers, DSL is simply the best broadband deal out there, so long as you're within a few thousand feet of a telephone company central office (CO). With all that demand, how can you go bankrupt? It's easy.
Here's the story. To install DSL, you need to have the POTS line provisioned and a DSL access multiplexers in the CO. Now, who controls the POTS and the CO? The answer is the Incumbent Local Exchange Carrier (ILEC) --a.k.a. the Baby Bells, companies like Ameritech and Verizon.
The ILECs also offer Internet services of their own. Legally, the ILECs are not supposed to favour their own house brand ISPs over the CLECs and other ISPs. Legally, that is. Out on the street, though, there is no question whatsoever in the minds of ISPs that ILEC ISPs get special treatment.
You know what happens next. The CLECs get undercut by price, DSL line-provisioning services are slow and the independent ISP--the guy who actually deals with the customer--gets screwed.
Or in cases like that of Carl J. Gnadinger Jr., administrator for a small ISP called Louisville Telecom, you don't even try to get into the DSL market, no matter how much customers want it. "I have actively pursued offerings, only to ultimately back away each time because the numbers were just not there. The infrastructure costs vs. the market pricing just have not made any sense for us smaller players." Given what's happening with NorthPoint and Zyan, it may not have made much sense for big players, either.
Take Zyan, a DSL reseller for Covad and NorthPoint, it had 350 percent growth in 2000 and still cut more than half of its staff in late November and filed for bankruptcy in early December. The simple truth is that the DSL CLECs built huge networks on a shoestring and then cut prices to the point where there was no way they could make a profit before 2002. Had the market kept up its manic pace, they might have made it. It didn't and now, unable to pay the bills despite enormous demand, both the CLECs and ISPs are in a world of hurt.
Even had the market continued in la-la land, it might not have mattered. The ILECs' DSL services prices still often undercut the CLEC's prices. Forced to compete on price alone, the ISPs have paper-thin margins or even lose money on many DSL customers.
Throwing salt on the wound, the CLECs and ISPs often fight with each other for customers, as the CLECs also offer ISP services. It's like watching two men in a knife fight--in a bar that's burning down around them.
What can you do if you're in this situation? Well, if you're a customer, make damn sure that your CLEC and ISP are healthy and can deliver the goods. Forget about asking them, ask their customers and read everything you can about their financials.
You also can consider talking with an ILEC about their DSL and ISP services. In my experience, ILECs tend to work at a snail's pace and their ISPs skimp on service and technical support. Most of the people I know on the West Coast, for example, consider PacBell's Internet services to be a bad joke.
If you want quality, look for a healthy ISP/CLEC combination with a history of delivering good service. It may cost more, but you'll get more.
Say you are a CLEC or an ISP, what can you do? Well, for starters you can bury the hatchet--not in each other's backs--and start work on mutual, long-term partnerships. So long as you keep fighting with each other, the ILECs can only win. Together, you've got a fighting chance to stick around and get your fair share of Jupiter's predicted $81 billion in business broadband net services come 2005.
