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AT&T's Gain is Microsoft's Loss

When Ma Bell boosted its Internet efforts Thursday by acquiring NorthPoint Communications' assets, it dually took away MSN's DSL service.

Microsoft, which relied on NorthPoint for its high-speed service, Friday revealed that it will soon be unable to provide suscribers with the MSN DSL service because NorthPoint Communication is unable to provide wholesale access to MSN.

In a letter to customers, MSN said, "Due to this unfortunate circumstance, your DSL service will be discontinued within the next week...We are still in the early stages of the broadband revolution. MSN remains committed to DSL as a viable broadband solution and delivering the best broadand access experience for our customers."

AT&T's gain has proven to be Microsoft's loss, observed Rob Lancaster, an analyst with Yankee Group's Internet marketing strategy group. "Microsoft had a vested interest in NorthPoint. It is a surprise to me that AT&T was able to sneak in the back door and pick up this deal at a bargain-basement price," he told internetnews.com. "NorthPoint was a DSL provider for MSN. Certainly MSN will not continue to get its DSL from AT&T because it is too competitive. With this acquisition, AT&T WorldNet gets a leg up while Microsoft's broadband strategy becomes more shaky."

AT&T's $135 million acqusition includes all of NorthPoint's co-locations nationwide, certain network equipment, systems and support software and related assets, including spots in phone company hubs in 109 regional locations as well as commercial real estate.

But few observers believe the deal will benefit others. In fact, AT&T could choose to discontinue service in certain areas and that could have a detrimental impact on small businesses as well as consumers, according to Dave Burstein, editor of the trade publication DSL Prime.

"Providing DSL for resale to ISPs is a low margin business and providers as diverse as panix.com, a small Texas-based ISP and the MSN will be affected if AT&T starts dropping services," Burstein said.

The NorthPoint sale will leave about 100,000 DSL subscriber lines without service as AT&T takes over the infrastructure, according to Joe Laszlo, an analyst with Jupiter Media Metrix.

The sale of NorthPoint and the resulting elimination of MSN's high-speed service could have an adverse affect on the near-term future of DSL, Laszlo noted.

"The 100,000 subscribers who don't know where their broadband service is coming from, coupled with MSN's announcement, could be a catalyst for consumer apprehension regarding broadband," he said. "Consumers were already skeptical about whether the DSL service was worth the price. Today's events make broadband appear unstable and runs counter to the promise that broadband is there when you need it. Smaller ISPs may also be dubious."

All of the players involved are going to be affected, Laszlo added. "Providers are in a position of reassuring consumers overall that DSL is a robust technology and this is a minor stumbling block. Alternatives need to be found smoothly and quickly."

Laszlo pointed out, however, that of the 5.2 million broadband households in the U.S., NorthPoint's subscriber base comprised a very small percentage.

NorthPoint, which filed for Chapter 11 in mid-January, had faced its share of problems over time, particularly after a merger agreement with Verizon was terminated last summer.

AT&T plans to put the DSL service to use in its local and long-distance telephone services as well as for Internet access, noted June Rochford, AT&T spokesperson. "This is a key acquisition for us and we plan to use it to do what our competitors are not doing and long-distance services, creating multiple revenue streams.

"We are really excited by this," she added. "This acquisition holds tremendous potential for us. It is an economically sound opportunity."

Lancaster noted that the purchase will allow AT&T to bundle its services, which will make it more competitive with other telcos. "Now AT&T can offer bundled dial-up services with DSL, which is a more compelling offer," he said. "Subscribers to AT&T WorldNet were a different demographic than that of other providers. These group is more technologically savvy and more ready for broadband."

In a prepared statement, Robert M. Aquilina, co-president of AT&T Consumer, reported that the acquisition will intensify AT&T's efforts to bring the benefits of DSL to consumers and businesses.

"These benefits include high-speed Internet access, local and long distance calling, and exciting broadband services, including virtual private networks, among other possibilities, in the future."

Meanwhile, MSN is stripping down its services. The company is offering its current DSL subscribers six months of monthly dial-up MSN Internet access at no cost -- an offer that pales in comparison to high-speed service. Other tokens include credits on service and modem payments and a $25 gift certificate that is good for two weeks at any MSN eshop merchant.

"Microsoft does deserve credit for acting quickly and trying to keep its subscribers happy," Laszlo said.

The AT&T acquisition took place in the U.S. Bankruptcy Court for the Northern District of California in San Francisco. The purchase is expected to close within 60 days.

From a regulatory standpoint, Pantelis Michalapolous, an attorney with Steptoe & Johnson who frequently works before the Federal Communications Commission, expects few problems with the AT&T acquisition.

"I think that there will be little concern from the FCC," he said. "The regulators approved the AT&T acquisitions of DCI and Media One, which were much larger plays from regulatory and antitrust aspects, particularly because NorthPoint was in a Chapter 11 situation."

However, he noted that concern may arise regarding AT&T's control of Excite@Home. "This could be a cause for conflict and may require conditions to be approved," he said.

Visitors to the NorthPoint Web site are greeted by a letter from Elizabeth Fetter, president and CEO, stating that the company is "currently negotiating with a group of our ISP partners for interim funding to support the migration of existing subscribers to alternate DSL service providers.

"Additional partners are welcome to join this discussion in order to facilitate the migration of their subscribers.

"Please call your NorthPoint account representative for more information.

"If we are unable to reach an agreement with our partners for interim funding to support the subscriber migration, we will immediately begin the shut down of our network. We will inform you of the outcome of these negotiations and the time frame for the eventual network shutdown as soon as information is available. We expect resolution within the next few days."



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