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RE: The DSL business model
From: Roeland Meyer <rmeyer () mhsc com>
Date: Mon, 14 May 2001 20:36:19 -0700

From: Steve Sobol [mailto:sjsobol () NorthShoreTechnologies net]
Sent: Monday, May 14, 2001 2:18 PM

[I don't know that I agree that this is off-topic...]

I'm with you here.

Steve Schaefer wrote:

1) ISP's who deploy DSL are on a very slim margin.  They 
can't afford to
be "full service."  That doesn't mean that the best DSL ISP's don't
provide better service than the mediocre or poor DS-1 
ISP's, but don't
expect $500/month support for your $150/month line.

I disagree with this characterization. Quite a few of those businesses would
gladly pay a few shekels more, for a decent SLA and some service. The
problem is in how you stratify the market. There are also market aggregation
issues (crossed with excessive greed).

2) Data CLEC's who provide most of the lines for 
independent ISP's have a
challenging business model.  Northpoint went down hard.  
That doesn't mean
that the others will go down hard, too, but they have the 
same kind of
risks.  They needed lots of capital and got most of it through debt

Debt financing is okay, as long as you don't overstate your sales
projections. Homes/business' passed isn't [the same as] homes/business'
online. Getting them online is the actual gross revenue (minus
delinquencies) and you have to have your payment terms fall under some
reasonable percentage of that. What many of them did was ass-u-me a larger
percentage of plant utilization (ie x plant generates y sales, over z
months). The sales didn't ramp up, or the delinquency rate went out of
sight, and predictable results followed. It's no different with public
offerings. Not making your dividend payments is about the equivalent of not
making your loan payments. It's all credit.

Well, wasn't the big problem that the DLECs were having 
trouble turning
around orders, and as a result ended up not getting paid by the ISPs?

Maybe. Looking at the Covad v. DSLnetworks case, Covad let DSLnetworks get
about 18 months in arrears. It certainly smells like bad management of
receiveables. How many of you guys would let arrearages age more than 90
days, regardless of the reason. At worst, you convert it to a prommisory
note, or some other debt instrument, with re-payment terms spelled out in
their BoD's blood.

3) ILEC's don't have a clue.  Some of them are well-intentioned

to say about both Verizon and Ameritech. Ameritech was 
until being bought by SBC, and they rolled downhill rapidly 

Having witnessed SBC takover of PacBell, from the inside (PacBell ACN/CBS),
it was most amusing to watch San Ramone meeting San Antone. I absolutely
knew that the HFC system was going to get cut, at the minimum. SBC
track-record isn't real good and they're not all that nice to work for.

Here in Cleveland, Ameritech offers only ADSL. I am not sure they even
know what SDSL is. :) They will, however, be happy to sell 
you 1.5x256 ADSL for $175 a month!

PacBell does NOT offer SDSL, which is pretty much a requirement for most
business usage. ADSL is only good as a [barely] competitive offering against
residential cable.

BTW, other than DSLnetworks failure, my DSL line has been rock solid for
over 2 years. Every problem I've had was an upstream failure. You can't
fault xDSL technology, only the business' behind it. 

The technology that can be faulted, and I sincerely apologize for not being
clear enough on this, is that which prevents adequate redundancy at the
end-nodes. The fact that 100,000 businesses can get lopped off by a single
provider business failure is pretty sad. I've tried, for over a year, to get
redundant uplinks to an alternate provider (ISDN backup to xDSL). CIDR,
prefix filtering, and cluelessness nail that effort every time. It doesn't
seem to matter that I am more than willing to pay for it. It simply isn't
available. But, it should be (I don't mean tinker-toy methods either).
Before CIDR, it was. The past few quarters has shown how necessary it is.
Guys, this is a huge market gap, why isn't anyone filling it?

Managing Director
Morgan Hill Software Company, Inc.
TEL: +001 925 373 3954
FAX: +001 925 373 9781
mailto: rmeyer () mhsc com

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