the New York Times

December 28, 2000

D.S.L. Service for Linking to Internet Is Problem Ridden

By SIMON ROMERO

   L auri Salladay had heard the horror stories of how high-speed
   Internet access can be as much of a curse as it is a blessing. But she
   never thought it would happen to her.

   Then one day last month Ms. Salladay, the creative director of a
   Manhattan company that designs logos for network television channels,
   found that her company's Internet connection, over something called a
   digital subscriber line, or D.S.L., was not working. Suddenly, she was
   unable to quickly retrieve images from the Internet or respond to
   e-mail messages from clients.

   To her dismay, Ms. Salladay found that it took more than two weeks to
   get the D.S.L. repaired, and only after she negotiated a byzantine
   process that pitted her against the bureaucracies of three companies
   the one that sold her the service, its wholesaler and the local phone
   company that actually operates the interstate data network.

   "I pleaded with them. I screamed at them, then I nearly broke down and
   cried," Ms. Salladay said. "I felt like I had 50-yard-line seats to my
   company's downfall."

   Aggravating the ordeal, which ended Dec. 15 after 19 days without
   service, was the fact that none of the companies involved XO
   Communications, her Internet service provider; NorthPoint
   Communications, the wholesaler; and Verizon Communications, whose
   network provides access to these companies sought to take
   responsibility for the problem.

   "I had assumed Internet providers had the same sense of service as a
   utility," Ms. Salladay said. "But now I know that I'm wrong."

   The technical problems that many consumers have encountered with
   D.S.L. are bad enough by themselves, but some critics think the
   Federal Trade Commission may have added to confusion in the high-speed
   Internet industry when it agreed to sanction America Online's
   acquisition of Time Warner only if the combined company agrees to open
   access to its broadband, or high-speed, Internet network to competing
   service providers. In light of the decision, the problems encountered
   by people like Ms. Salladay are likely to draw a lot more attention.
   Recently, even Andy Grove, the chairman of the Intel Corporation, had
   to wait a week for his D.S.L. service to be repaired in his Silicon
   Valley home.

   Congress paved the way for competition in D.S.L. when it passed the
   Telecommunications Act of 1996, deregulating much of the telephone and
   data-transmission industry by encouraging competition among service
   providers, local telephone companies and regional Baby Bells like
   Verizon and SBC Communications. But the competition threatens to swamp
   the small companies that compete with the Bells and has contributed to
   a wave of customer dissatisfaction with delays in installing and
   repairing D.S.L. service

   "If there is anything regulators can take away from looking at
   competition in the D.S.L. industry, it is that the devil is in the
   details," said Robert Lande, a professor at the University of
   Baltimore Law School and director of the American Antitrust Institute.
   "We understand now that simply fostering competition is not enough."

   While D.S.L., which uses regular copper telephone lines, is a
   different technology from the coaxial or fiber optic cable networks
   used by the future AOL Time Warner, the aim of both is the same: to
   provide high- speed Internet access to homes and businesses.

   Unlike cable, D.S.L. is limited by the location of telephone switching
   equipment. For the service to work, customers cannot be too far from a
   switch, which has led analysts to estimate that perhaps only 60
   percent of American homes and businesses are situated to get D.S.L.

   Still, because more than 95 percent of American homes have telephone
   lines, while fewer than 70 percent have cable television, analysts
   think D.S.L. may eventually rival cable as the main way people get
   fast Internet access.

   It has a way to go yet. At the end of this year, 3.4 million homes and
   businesses will have broadband Internet access through cable modems,
   compared with 1.2 million D.S.L. subscribers. But by 2005, there will
   be about 13.8 million cable-modem subscribers and 11.2 million D.S.L.
   subscribers, according to Jupiter Communications, a
   communications-industry consulting company.

   For that to happen, the D.S.L. industry must overcome its recent
   difficulties, according to a recent study by Cahners In-Stat, a
   technology research company. Cahners found that growth in the number
   of D.S.L. subscribers slowed in the third quarter from the previous
   three months, and was outpaced by the growth of cable subscribers.
   While the study attributed part of the problems in the D.S.L. industry
   to one-time events like the August strike by employees at Verizon, the
   company formed by Bell Atlantic's acquisition of the GTE Corporation,
   it is clear that some of the industry's woes are derived from the
   confusion inherent in the way competitors relate to one another.

   Under rules laid out by the Federal Communications Commission, for
   example, it is not uncommon for customers to buy a D.S.L. connection
   from an Internet service provider like XO or EarthLink, which
   contracts with a data-transmission company like NorthPoint or Covad
   Communications that uses the telephone network owned by a third party
   like Verizon or SBC. Customer orders must be passed up and down this
   chain, with the opportunity for delay and error at each link.

   "The F.C.C. has put all of these companies in the same weird house,"
   said Mike Lowe, an analyst with Cahners In-Stat. "No one takes
   ownership for problems while competitive entities are focused on
   continuous customer acquisition. It's generated mayhem."

   Aside from customers who emerge stymied from dealing with the
   complexities of D.S.L. service, the brunt of the chaos has been felt
   by the small Internet service providers and the data carriers that
   have been unable to meet overly optimistic subscriber growth
   estimates. In recent months, several I.S.P.'s have filed for
   bankruptcy, prompting companies like Covad and NorthPoint to revise
   their growth estimates and even start thinking about getting into the
   retail I.S.P. business themselves, which would pit them against some
   of their largest customers.

   "It's bad enough that the I.S.P. community is struggling to find a way
   to remain solvent, reducing expenditures by giving large portions of
   our staff a permanent vacation for the holidays or even being forced
   into Chapter 11 restructuring," said Blythe Tucker, president of
   Internet Express, an I.S.P. in San Diego. "Now our partners are
   finding more creative ways to further our demise."

   In an effort to retain customers whose I.S.P.'s are struggling, Covad,
   for example, has sought to allow those customers to buy Internet
   service directly from Covad. But even that may not be enough to put
   Covad on the road to profitability.

   Covad restated its third-quarter loss as $125.3 million last month,
   almost $5 million more than it first reported. Later, the company said
   revenue in the coming year would be about 30 percent below Wall
   Street's expectations. Its chief executive and other officials then
   resigned after being sued by investors who say they were misled by
   overly optimistic growth projections. Covad's stock has declined by
   more than 95 percent so far this year.

   NorthPoint, which is based in San Francisco, is not doing much better.
   It also restated results last month, admitting that revenue in the
   third quarter was $24 million instead of $30 million after some
   Internet service providers were unable to pay their bills. After that
   announcement, Verizon pulled out of a $800 million plan to acquire the
   company.

   Then Northpoint, which sued Verizon for withdrawing from the
   transaction, laid off 248 employees, or a fifth of its work force, to
   reduce expenses. Its stock price has fallen 98 percent from a 52-week
   high of $34.75 in January. The strain on the company was apparent when
   it declined repeated requests to discuss the problem faced by Ms.
   Salladay, the director of the Manhattan company whose D.S.L. service
   had been interrupted.

   "We don't have time to comment on individual cases like these," said
   Marvin Wamble, a NorthPoint spokesman. "Our highest executives are
   just struggling to keep the company alive, that is their most
   important objective at this point."

   XO Communications, the Internet service provider that engages in
   direct communication with Ms. Salladay after it bought Concentric, the
   company that last year originally sold her the D.S.L. service, was not
   much more comforting with its summary of the situation.

   "To be beholden to the incumbent phone company is a situation that no
   one likes," said Mark Fisher, XO's vice president for marketing,
   referring to the Baby Bells, which offer their own competing D.S.L.
   services. "Generally we have smoother relations with the incumbents in
   the West. Verizon is probably the hardest incumbent to deal with."

   Verizon dismisses the idea that it is to blame for Ms. Salladay's
   woes.

   "One reason why it took a long time was that the only company with
   full test capabilities to diagnose the problem appeared to be
   NorthPoint," said Clair Beth Nogay, Verizon's principal executive for
   dealing with other access providers.

   Oddly, the most likely outcome of the effort to foster competition
   among the companies providing D.S.L. services appears to be the
   strengthening of the D.S.L. operations of large local phone companies.
   Verizon, SBC and others are adding more than 3,000 D.S.L. customers a
   day as demand for the service shows few signs of slowing.

   "As many as 90 percent of D.S.L. customers could soon be served by the
   incumbent telecommunications companies," said Dave Burstein, editor of
   D.S.L. Prime, an online newsletter about the D.S.L. industry. "The
   biggest dilemma these companies and their customers will face,
   however, will be how to adapt corporate structures to a highly
   complicated technology with dynamic growth rates."

   Of course, even as large, established phone companies get a bigger
   piece of the D.S.L. market, the focus on competition in the high-speed
   Internet industry could shift to the cable business if more consumers
   follow the example of Ms. Salladay. She is signing up for access with
   one of the cable companies and is weighing the idea of suing the
   companies involved in providing her D.S.L.
   "I have such a bad taste in my mouth after dealing with these people,"
   she said. "I never want to give any of them another cent."


VICUG-L is the Visually Impaired Computer User Group List.
To join or leave the list, send a message to
[log in to unmask]  In the body of the message, simply type
"subscribe vicug-l" or "unsubscribe vicug-l" without the quotations.
 VICUG-L is archived on the World Wide Web at
http://maelstrom.stjohns.edu/archives/vicug-l.html