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By Chris Sandlund
FEBRUARY 17, 2000

Wholesale vs. Retail: Who Sells What in High-Speed DSL

Just because they advertise a lot doesn't mean you can buy their service


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Flip on the TV, and chances are you'll see an ad for Covad Communications Co. Tune in to National Public Radio, and you'll hear a show sponsored by Rhythms NetConnections Inc. Open your newspaper and something called Flashcom Inc. will vie for your eyes in the business section. They're all touting broadband Internet access using Digital Subscriber Lines (DSL), the high-speed Net service available through your phone lines.

But who are these guys? Can you trust them with your company's always-on connection to the Net?

You can blame the confusing hype on the clunky nature of our regulated phone system. Deciphering who does what in this landscape takes a little concentration, but once the smoke clears, it's not all that complicated.

Broadly speaking, these companies fall into two categories. First up are companies known by the unwieldy phrase "data competitive local exchange carrier." These are the true DSL vendors such as Covad, NorthPoint Communications Group Inc., Rhythms, and several regional companies (including Inc., New Edge Networks, and Telocity Inc.) These firms place what is known as a DSL access multiplier (or DSLAM) in the central office of your local phone company. This piece of hardware, which acts like a switch, transfers the data coming over the phone wires from your high-speed DSL modem, onto their private networks and then to the Internet's backbone. In effect, they're wholesalers: They're so busy installing DSL equipment in the thousands of central offices around the country that they don't have time to market or service DSL to retail customers.

So why do you even see their pitch? "Covad's ads are like the 'Intel Inside' campaign," says Justin Beech, editor of DSL Reports. "They're branding their service and encouraging you to buy service from one of their partners."

The partners are part two of the DSL equation: Internet service providers. These DSL-savvy ISPs contract with companies like Covad for the right to hook customers up to the DSLAM. In effect, the ISPs are resellers. Because a technician at the phone company has to hook the phone line to the DSLAM, the ISPs also act as a go-between that ensures everything happens on schedule. Then there's a third player -- your local phone company. It acts as both DSL vendor and ISP, selling service to individual customers under names like Infospeed (Bell Atlantic) and FastAcces (Bell South). The Baby Bells jumped into the DSL market at about the same time as the lesser-known brands, and are now aggressively pushing their services, too. But you know who they are.

Which ISP should you pick? Go to Covad or Northpoint's Web site. They list all the ISPs that are currently coordinating DSL service with their equipment in your area.(Where you are determines what's available.) The database is silent on which has the best installation or service reputation.

Don't count on seeing the names of many national ISPs such as AT&T and MCI. These big players are mostly dabbling in DSL, unsure they want to cannibalize other more profitable high-speed connections. They don't tend to own their own DSLAMs and have limited relationships with the Covads of the world -- which explains why you haven't seen many MCI ads pushing broadband DSL.

That leaves most businesses evaluating smaller ISPs or their local phone company for their broadband needs. But, honestly, how many people had ever heard of national ISPs such as Flashcom, Concentric Network Corp., and Zyan Communications before seeing an ad? Or such regional services as Red (run by the obscure Prism Communications Services)?

Underneath the marketing pushes lie serious customer-service problems. Customers rate their ISPs and rant about the service at Beech's Consumer Reports-like Web site. Very few of those pushing lots of ads come out well-especially Flashcom, which has become something of a flash point of subscriber anger.

"A lot of folks are growing so fast that they can't keep up," says Dave Burstein, editor of DSL Prime. In a lot of ways, many of these ISPs are suffering from the same problems that beset America Online when it switched to flat-rate pricing. Customer demand is outstripping their capacity: The resellers haven't contracted for enough DSLAM capacity. Also, customer support has been unable to handle the large volume of consumer interest.

Companies say they're responding as fast as possible to customer concerns amid a fast-growing market. Flashcom, for instance, recently added a new management team and invested millions on back-office support systems. "We're seeing the first signs of a real turnaround in the customer experience," says President Richard Rasmus, who joined the company in January. He says the raw number of complaints about the company simply reflects the fact that it has the largest number of customers.

With DSL ISPs acting as middlemen, you might be tempted to heed your phone company's ads and sign up with them. After all, they own DSLAMs and act as ISPs. They also employ the technicians who hook up your phone wires. A quick browse through Beech's site might change your mind. Only Southwestern Bell fares well in customer opinion.

Will one of these ISPs ride out the competitive clash to dominate the DSL broadband market? Only time will tell. For now, Beech points to several ISPs that are receiving good notice on his site. Among the best, he cites Phoenix Networks, Speakeasy Network, and MegaPath Networks Inc. They've tended to avoid hyping their service and focus on customer needs instead. If they stick to that formula, these upstarts may end up with the best advertising of all: good word of mouth.

Table: Related Links

Companies mentioned in the story:

Covad Communications Co. ,

Rhythms NetConnections Inc. ,

Flashcom Inc. ,

NorthPoint Communications Group Inc. , Inc. ,

New Edge Networks ,

Telocity Inc. ,

DSL Reports ,

AT&T ,


MindSpring ,

Concentric Network Corp. ,

Zyan Communications ,

Red ,

DSL Prime ,

Southwestern Bell ,

Phoenix Networks ,

Speakeasy Network ,

MegaPath Networks Inc. ,


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