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WorldCom Bids On Various Rhythms Assets
iamabot writes: "DSL providers are cheap these days. After the AT&T acquisition of NorthPoint assets for 135 million, WorldCom has issued a 40 million dollar bid for various assets of Rhythms. The interesting thing here is after some other providers disconnected their subscribers, WorldCom seem to be interested in operating the existing network. I suspect this will actually be a fairly cheap endeavor, when compared to the capital and recurring expenditures DSL providers faced over the past few years, especially for WorldCom. The majority of the cost associated with lighting up a DSL network nationally involves the capital expenditures to buy the equipment and the huge recurring monthly transport costs for central office aggregation to a node.
Does anyone else see the acquisitions in the past year or so as an opportunity for the DSL industry to rebound?"
After so many bounced and now that most of what's left are hurting...it's unlikely to see them gain alot of financial backing.
A different kind of animal
I'm just trying to get Verizon to stop sending me things in the mail or calling me about it. I cancelled service and switched to cable. If I ever want DSL again, I'll call them. Until then they can stop wasting trees.
-Chris
Cost, in a business, are two sorts - capital and operational. What Worldcom have done here is picked a business at a discount compared to the capital expediture they would be required to make to build the same business. A fire sale in other words.
I suspect this will actually be a fairly cheap endeavor, when compared to the capital and recurring expenditures DSL providers faced over the past few years
Now, the recurring cost will be a bit less for Worldcom compared with Rhythms but not by a huge margin (basically by the amount it takes to service the smaller debt, plus some from economies of scale). So I don't think that this will be a fairly cheap endevour to run. However, as the DSL market is undergoing a shakeout there will be less competition, and this will push user costs up.
The equation is a bit less opex, low capex for the infrastructure, and more revenue generated due to price increases (and, possibly, provision of low cost high margin services to a larger pool of users). Hopefully, opex+capex servicing+investment revenue, or it's goodbye DSL.
It means it cost a lot of money to build the BIG ATM backbone to carry all the DSL traffic from the DLSAMs to the POP.
Most DSL providers have one POP in a region and the backhaul all the DSL traffic from the DSLAMS colo'ed in the telco central office to that POP over the telco's ATM network. The Telco loves to build SONET rings over already existing fiber because it doesn't cost them anything 'cept the cards in the OC-192 mux.
Most DSL providers start with DS-3 (45mbps) ATM SONET rings in a LATA. You need a lot of DSL subscribers to pay for that ring every month and only a 1/10th of that to fill it. Moving up in speed to OC-3,OC-12,OC-48,OC-192 gets very expensive.
Now I hope and pray that I will But today I am still, just a bill
> WorldCom said it will operate Rhythms' network
> assets in 31 markets and will have the right to
> use assets in 709 telephone companies' central
> offices and at Rhythms' Englewood, Colorado
> headquarters.
Sounds to me like they got a good deal. DSL is not a long-term solution to broadband access provision, so you might immediately think "why would anyone voluntarily lumber themselves with a soon-to-be-obsolete infrastructure?". But the right of access to all that existing CO plant is worth a lot more to them. They'll be grateful of it once they move beyond the limits of the current twisted pair local loop.
This theory seems more plausible for the fact that most (all?) of Rhythm's customers have already left the service. Usually when one service provider takes over from another they inherit some sort of customer base, goodwill etc... but in this case, there is little (none?).
In the meantime, they can probably make back most of that money by getting themselves organised and charging a sensible price for DSL. But I rather fear that too many customers have already got burned and will switch to cable, or wait for fibre, or even just wait to see what the market looks like in a years time (that's the attitute that *really* pisses off telcos!).
These sigs are more interesting tha
For those who are interested in the capital (equipment) cost of rolling out a DSL service, the current basic cost is down to about $50 for a USB modem, and $100 for the DSLAM port. (assuming you want 10,000 of them).
Of course, you have to add in the warm bodies in the call center, and the backbone bandwidth, but these are telcos, and are supposed(!) to have a good ATM backbone already. (Besides, moving surfers from dial-up to DSL saves a *HUGE* volume of voice capacity on the backbone anyhow).
Source for the above figures is the latest news report from DSL Prime.
They provide a good free (as in beer) report on the DSL industry.
-- We don't understand software, and sometimes we don't understand hardware, but we can *see* the blinking lights
To me, Verizon (and SBC) is the Microsoft of the telecommunications business. I spent a few months this year dealing with a DSL fiasco. I'm not one of those people who gets upset about little things, but when they shut off my normal phone service and so forth, I began getting really pissed off.
Verizon (and SBC) have a government-granted monopoly on local phone service. The government says they're the only ones who are allowed to string telephone wire over and under our public streets. A condition of this monopoly which the government has granted, Verizon has to let DSL providers like Covad, Northpoint and Rhythms access to the central office and so forth. Verizon has been breaking the law and not meeting this obligation. In 1999 Covad filed an anti-trust suit against Verizon.
I had Covad as my DSL provider, Verizon is my local Baby Bell Local Exchange Carrier. For people who have ever had to deal with a T-1 which is down, you know how it is maddening as Verizon and Digex (or UUnet, or Sprint, or MCI) just point fingers at each other and say it's not their fault. I am somewhat familiar with central offices and the like so I was able to discern who was at fault in my case - and it was always Verizon's. When I called Verizon to complain that my phone line was dead or at other times that my DSL line was dead they had the gall to ask me why I wasn't using Verizon DSL. Covad kept making appointments to get into my CO but the Verizon people were always no-shows. Hell, they're a monopoly, why should they care.
Verizon is also one of the biggest political contributors in New York state politics, and one of the biggest contributors to national campaigns. This is how they get the government-granted right to be the only ones allowed to string telephone wire over and under our public streets. Once Covad, Northpoint and Rhythms are out of business, they can hike DSL rates up real high.
There is a GLUT of unused bandwidth out there, and even in this economy a demand for DSL. But government-granted mononopolies like Verizon/SBC prevent us the user/consumer from getting to that bandwidth. I keep getting advertisements in my phone bill for Verizon DSL, but I will never use them. I became so mad at Verizon, I did some political work on the campaign to keep them from doing long distance in Massachusetts.
Open up our phone lines to free competition. Get rid of the Verizon/SBC monopoly over phone lines over and under our public streets, which is granted by corrupt politicians who are paid off to maintain that license.
Secondly, DSL will not bounce back until there is more action taken against the ILECs like Verizon and SBC/Ameritech. The 4-6 weeks to set up a DSL line to a CLEC is typically to allow the amount of time for the ILEC to go out and switch it over; since this means a loss of a potental customer to the ILEC, they drag their heels as much as possible, despite threats of gov't intervention or penality. Here in the mid-west, Ameritech land, we're just getting over our hundreds-of-million-dollar spanking of Ameritech for poor customer service and repairwork of normal phone lines (with further penalties for future incompenticies), but nothing to cover the broadband market. $100M may seem like a lot, but that's chump change to SBC/Ameritech; it's probably cheaper for them to incure these fines than to spend more to bump up service.
"Pinky, you've left the lens cap of your mind on again." - P&TB
"I can see my house from here!" - ST:
I have posted here many times stating something to the effect of: "The reason these guys are going down is the same reason Pets.com went down, you just can't give away $400-500 modems and expect to make a profit. I'm working with a small New England DSL provider, and we make customers pay for their modems, because they understand this and know we won't be shutting them down unexpectedly like Covad, Vitts, North Point, etc..."
I was wrong, we went under too. I suspect the DSL industry will rebound but it will only rebound as a few companies that bought out the first generation of DSL providers for penies of what it cost to creat the infrastructure and customer base.
I see the same thing happening with the cable modem industry, as Adelphia is gobbling up cable providers that fall too far into the red. Practically overnight, an unheard of little Cable Company in New York has sprung up with customers and pipes coast to coast at a fraction of what it cost to build.
This is a good and a bad thing... it's good for present DSL customers with local COs because someone else will likely move in and keep their connection on... but don't expect these guys to invest in more COs to expand their reach to more customers. If you don't have a local CO now, you won't for the forseeable future.
There are a couple of issues to think about. A handful of months ago, Scott McNealy of Sun Microsystems fame said in a speech that there are going to be some "third time owned" effects in the marketplace. What he meant was that with the original (new) cost of the equipment it is difficult to make a venture (whether it be telecom or internet) profitable. The second time around is better, but still not good enough. By the time the equipment ends up in it's third set of hands the cost has likely decreased to the point where the service can be offered at the current market rate and yet be profitable.
Whether you apply this to telecom companies (360 Networks) that have buried a tremendous amount of fiber or to internet companies (Webvan and their excellent warehouses and technology or take your pick of high-flying dotcom that bought too many Sun servers) it is not difficult to understand. When you pay 10% of the original price it is easier to be profitable. How surprised would you be if Worldcom DIDN'T cut a deal with the ILECs on long distance in order to get cheaper rates for DSL?
No, I see this as the Bells finally having knifed the baby.
These entrenched companies didn't want to open up their developed-under-monopoly wiring plants to outsiders but desperately wanted access to the long-distance market and so were willing to concede entry. However this didn't mean they had to play fair and so they took every opportunity and used every trick in the book to screw, backstab and block their competition. Now that they've managed to eliminate that competition they can buy the carcasses for pennies on the dollar and return to their slow expensive monopolistic ways.
This isn't a rebound, it's a rape and the consumers are the next to get screwed unwillingly.
I don't read ACs: If a post isn't worth so much as a nom de plume to its author then I wont bother either.
First off, and speaking as a regular Slashdot karma whore who loves bashing Bill, I think it's cruel to Microsoft to equate VZ and SBC to them! But anyway...
These ILECs do not have a legal monopoly on anything any more. You and I can string wire under or over the street next to theirs. It's just bad business to try. Several companies such as Worldcom (ex-MFS, Brooks, MCI), AT&T (ex-TCG), Metromedia, Hyperion, XO and ELI dumped a few billion dollars burying fiber under the streets in major business districts. Often right next to each other, guaranteeing that nobody would have enough business to be profitable. That's one reason why the telecom sector is so weak now. Local competition was opened nationwide in 1996 and there was so much cheap capital around at the time that a lot was squandered.
There is still a growing CLEC sector, but the failures of Covad (operating in Chapter 11), Rhythms, Northpoint, Vitts, BBO and others have demonstrated how hard it is to operate as a pure-play DSL provider. Many of the surviving CLECs, like Allegiance and McLeod USA, combine their own facilities with leased ILEC wire and do both voice and data. Rhythms leased the wire but only got the data revenue from it.
CLEC survival depends upon the FCC enforcing rules that require the Bells and other ILECs to interconnect and lease critical facilities to them. That has been rather lacking as of late. It also depends upon Congress *not* changing the rules and, for instance, passing the Dingell-Tauzin bill, which would essentially shut CLECs out of the DSL business and make it an unregulated ILEC monopoly.
Which is true.
But it's a long way of saying "The early bird gets the worm, but the second mouse gets the cheese."
All it really means is that the billions of dollars in capital to build the network got evaporated when the shareholders and bondholders took a bath in bankruptcy, and after a couple of iterations of "Oops, we couldn't make it work, here, you take it off our hands for 30 cents on the dollar", the "cost" drops.
The "cost" of building the network, of course, hasn't dropped -- only what people are willing to sell the network for once it's been built.
Of course, those are the risks you take when you invest capital. In this case, the shareholders and bondholders got burned, but the world got a pretty neat network out of the deal.
I've seen what happens when a big telco tries to dumb down a NOC. It's ugly. Might be cost-effective in the long run, I don't know, but it sure is no fun.
Ben "You have your mind on computers, it seems."