Baby Bell Boom Offsets ISP Bust

In a year fraught with the financial bust of many broadband Internet service providers, two Baby Bells are reporting a broadband boom.

Verizon Communications, Inc., and BellSouth both announced they had met or exceeded its 2000 digital subscriber line goals.

With more than $6.2 billion in data revenues this year, Verizon is expecting last year’s success to propel growth to new heights in this one.

Ivan Seidenberg, Verizon co-chief executive officer, said the company expects growth even in today’s depressed market, with 2001 earnings in the range of 76 to 78 cents per share.

“Our growth engines — data, DSL, long distance, wireless — are strong enough to accelerate our overall growth rate, even in the face of an economic downturn.”

Much of its revenues come from the lucrative digital subscriber line business it has generated this year. An aggressive rollout in 2000 netted the telco 540,000 subscribers, 40,000 more than it expected and the distinction as the largest DSL provider in the nation.

SBC Communications, the only company even close to posting subscriber numbers like Verizon, has about 519,000 subscribers.

While not experiencing the level of success experienced by its fellow incumbent local exchange carrier, BellSouth has able to garner 215,000 DSL lines in 2000, or 15,000 more than it had planned. The boost in numbers makes it the third largest provider, behind Verizon and SBC.

Ralph de la Vega, BellSouth president of broadband access services, said last year’s success has company officials eager to adopt an even more aggressive acquisition deployment in 2001.

“We feel that with our expanded deployment strategies, improving customer satisfaction levels, and our customers’ continued use of our self-install option, our 2001 projection of 600,000 DSL subscribers is another milestone BellSouth will reach,” de la Vega said. “By surpassing our DSL subscriber forecasts for 2000 and detailing our plans for the future, BellSouth demonstrates that it is committed to rolling out broadband services at a rapid rate.”

Currently, only 10 million of BellSouth’s 41 million telephone lines are able to support its DSL offering, a number officials expect to increase to 15 million by the end of 2001.

The announcements are in stark contrast to the difficulties experienced by ISPs and competitive local exchange carriers.

The three largest CLECs; Covad Communications Group, NorthPoint Communications and Rhythms NetConnections have all reported problems getting revenues from the ISPs who buy their lines. Several of these ISPs have recently had to file for Chapter 11 bankruptcy protection.

It’s a predicament that’s forced CLECs like Covad to sell off pieces of its entity to the very companies its trying to compete against.

Covad sold off a large equity chunk of its business to SBC earlier this year, while NorthPoint was just jilted at the altar after Verizon backed out of an acquisition contract last month.

It’s a scenario predicted by some industry analysts in early 2000.

Mike Lowe, Cahner’s In-Stat advanced carrier services senior analyst, said in a report titled, “DSL Service Roll Outs and the Competition,” that while CLECs will take a significant share of the DSL market, they will not be able to continue with long-term success.

“At the end of the day, CLECs do not own the network, nor do they own the customer. As wholesalers, they are somewhat beholden to their retail partners, and as users of the (Baby Bells) networks, they are potentially at the mercy of the incumbent carrier.”

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