Friday, June 11, 2010

No Room for Independent DSL Providers

That's what Om Malik is saying, "To me, this deal means that there is little or no room for independent DSL providers, especially as we move towards an ultraband future. Sure, there are exceptions like, but in general the capex requirements are getting too high to stay competitive with cable and fiber providers."

The deal he is talking about is the merger of Speakeasy, which Best Buy bought for $97M 3 years ago, with the soon-to-be merged Covad-MegaPath. I think it's a matter of scale. (Speakeasy had 30k subs). Windstream, CenturyLink and even the DSL guys have a strategy that they assume means scale. Maybe.

At Tunica, Brian Worthen of Mammoth Networks may have a different take on that strategy as he speaks to the service providers in attendance on June 22-23, 2010.

Mainly, the message is that this new DLEC will be a MSP not just a transport provider - or dumb pipe provider. It remains to be seen if this merger will become a friend to Hosted PBX providers - or because MegaPath is a Broadsoft customer, CMS (covad-megapath-speakeasy) won't offer transport (MPLS) to VoIP companies. (New Edge Networks and Mammoth Networks do).

Note that Om pointed out that Sonic.Net was an exception. Is that because of their size? Or because being regional means a different business strategy and likely a better executed one.


The take-away is that DSL resale as a dumb pipe is not profitable. As I have repeated declared - Layer 1 or Layer 7. Own the network - copper, DSLAM, fiber or wireless. Or own the desktop apps - hosted email, SAAS, backup, and managed services. Covad owns its own DSLAMs. It's 2 biggest customers were - drum roll - MegaPath and Speakeasy. Covad's other customers include AT&T, XO, VZ, and Paetec. Added lesson: you need to constantly stay in touch with your top customers.

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