One of my clients was explaining to me tonight that he has been listening to my two-year anti-DSL rant (and moving on his alternative plans). He also mentioned that I am a little arrogant and direct with my messaging. (He's right there). But guys don't grasp subtle. Also, to move someone outside their comfort zone takes force. And ISP owners have been very comfortable with their head in the sand vis a vis the LEC wholesale DSL program.
I have had mergers on the brain lately. (Read here). The history of DSL really starts with the DLEC IPO's from a bunch of failures: Northpoint, Rhythms, DSL.net, Netrail, and NAS.
360 was supposed to buy Netrail, but 360 filed a BK instead; Cogent sucked up the Netrail assets in 2001.
Northpoint IPO'ed in 1999. Many of Northpoint's clients (smaller ISP's) went bankrupt in 2001, which led to Northpoint needing help. VZ backed out it's acquisition deal that would have given Northpoint an $800M cash infusion from VZ in 2001 in exchange for 55% of the company. Northpoint filed BK in 2001. AT&T bought the assets for $135M.
Rhythms also did a 1999 IPO and filed BK in 2001. Worldcom bought the leftovers.
DSL.net had a small IPO; bought NAS in 2002 out of BK; acquired by Megapath in 2006.
Covad's path from IPO to BK to being bought by Platinum Equity to its merger with its customers is too convoluted to write.
Why all the failures for the DLEC's? Multiple reasons.
- Too many of them that went nationwide instead of densely regional.
- ILEC hurdles made turning customers up extremely difficult and expensive.
- No back office.
- DSL success hinges upon scale.
- DOCSIS 2.0 was released in December 2001.
While reflecting on the triple merger of Covad and its two biggest customers - Speakeasy and MegaPath - I keep thinking that it was about scale for one thing. Almost $500M in revenue. Telecom is mainly about scale right now for the money men. Covad has a network. Speakeasy knows how to sell via retail and online channels. Megapath has a solid understanding of selling via the agent channel. Also, Megapath understands that Layer 1 and Layer 7 are important. Managed Services is the key.
I was on a panel discussion for COMDEX-Virtual about The Cloud. The other panelists have noticed from recent conferences that both agents and VAR's are anxious in the face of an uncertain future. ILEC's don't want to pay commissions for stuff they can sell online (DSL, bundles, etc.). T1's are heading into end-of-life because broadband speeds "appear" to be faster. How do you sell a 1.5MB circuit to someone with a 6MB DSL? Very challenging.
CLEC's want to sell bigger pipe. Ideally, they want to sell big pipe in on-net buildings to maximize profit. They haven't figured out how to do that yet. At the same time, even big pipe pricing is dropping. Not good for anyone - especially with a trillion in debt due by 2013.
The COMDEX panel is demonstrating that the Opportunity is in Professional services. Like IBM and UPS, leveraging scarce skills in the marketplace equates to value. That value can be sold. The Cloud, SAAS, Security, Hosted PBX, devices, TEM, asset management, mobility, FMC, open source - a stew of opportunities for agents, VAR's, and ISP's.
Megapath calls themselves an MSLEC but the managed services piece is just managed security, MPLS and VPN and soon Broadsoft-based Hosted PBX. Nothing there that couldn't be done by you. The one stand-out for both New Edge and Megapath is that they chase a niche - Retail.
So what are the lessons? Lots of opportunity. Assess your in-house skills and exploit them to the businesses in your marketplace. Pick a niche or a vertical. Get dense or Go Deep in your town.
BTW, MegaPath Business Ethernet service 3.0 x 3.0 Mbps is just $379. Call me if you want some.