WorldCom Bids On Various Rhythms Assets

iamabot writes: "DSL providers are cheap these days. After the AT&T acquisition of NorthPoint assets for 135 million, WorldCom has issued a 40 million dollar bid for various assets of Rhythms. The interesting thing here is after some other providers disconnected their subscribers, WorldCom seem to be interested in operating the existing network. I suspect this will actually be a fairly cheap endeavor, when compared to the capital and recurring expenditures DSL providers faced over the past few years, especially for WorldCom. The majority of the cost associated with lighting up a DSL network nationally involves the capital expenditures to buy the equipment and the huge recurring monthly transport costs for central office aggregation to a node. Does anyone else see the acquisitions in the past year or so as an opportunity for the DSL industry to rebound?"

WCOM datacom strategy

[Anonymous Coward]

This is probably a special case; Rhythms was WCOM's partner in the DSL biz (see here [rhythms.net]), providing WorldCom with CO co-locs and service in markets that weren't profitable or possible for the company to penetrate, and WCOM was therefore not in a position to easily leave Rhythms behind. When Rhythms entered financial trouble, the deathwatch analysis included wargaming possible scenarios WCOM might choose to maintain its xDSL product. Purchasing Rhythms' assets is the most expensive, especially given current capital problems in the telecom industry, but assuming corporate liabilities shifts most of that burden onto future earnings, and the addition to WCOM's physical and contracted networks is substantial. This should also reduce time-to-market for xDSL products and services, since bringing the Rhythms networks in-house will remove the need to link across corporate and systems boundaries. In the medium- and long-terms, this is an up for WCOM.

Nonetheless, WCOM's CLEC status does make it vulnerable to changes in the telecom regulatory sphere, and this only increases their sensitivity to potential ILEC-sponsored legislation. The recent tragedies in New York and Washington have back-burnered many of the bills in the telecom regulatory war, but watch for the introduction of sub rosa amendments and riders by both sides of the industry in the coming months.

(kd9:biz)

DSL Rebound.... sorta

[disc-chord]

I have posted here many times stating something to the effect of: "The reason these guys are going down is the same reason Pets.com went down, you just can't give away $400-500 modems and expect to make a profit. I'm working with a small New England DSL provider, and we make customers pay for their modems, because they understand this and know we won't be shutting them down unexpectedly like Covad, Vitts, North Point, etc..."

I was wrong, we went under too. I suspect the DSL industry will rebound but it will only rebound as a few companies that bought out the first generation of DSL providers for penies of what it cost to creat the infrastructure and customer base.

I see the same thing happening with the cable modem industry, as Adelphia is gobbling up cable providers that fall too far into the red. Practically overnight, an unheard of little Cable Company in New York has sprung up with customers and pipes coast to coast at a fraction of what it cost to build.

This is a good and a bad thing... it's good for present DSL customers with local COs because someone else will likely move in and keep their connection on... but don't expect these guys to invest in more COs to expand their reach to more customers. If you don't have a local CO now, you won't for the forseeable future.

Profitable? I wish I knew...

[great shamer]

There are a couple of issues to think about. A handful of months ago, Scott McNealy of Sun Microsystems [sun.com] fame said in a speech that there are going to be some "third time owned" effects in the marketplace. What he meant was that with the original (new) cost of the equipment it is difficult to make a venture (whether it be telecom or internet) profitable. The second time around is better, but still not good enough. By the time the equipment ends up in it's third set of hands the cost has likely decreased to the point where the service can be offered at the current market rate and yet be profitable.

Whether you apply this to telecom companies (360 Networks) that have buried a tremendous amount of fiber or to internet companies (Webvan and their excellent warehouses and technology or take your pick of high-flying dotcom that bought too many Sun servers) it is not difficult to understand. When you pay 10% of the original price it is easier to be profitable. How surprised would you be if Worldcom DIDN'T cut a deal with the ILECs on long distance in order to get cheaper rates for DSL?

Re:Smart move

[Carpathius]

Doubt it'll happen. I was/am also a Telocity customer, and I've already been migrated to an Ameritech line (I assume). The good news is that I wasn't forced onto PPPoE, which is what looked like would happen.

I gave it a lot of thought. Telocity/DirectTVDSL is the only service available to me that hands me a static IP, doesn't block ports, and doesn't mind if you set up a (small) network behind their router. There are enough good things there that I don't ming having ADSL instead of SDSL.

Of course, I don't upload multi-gig files, either....

Sean.

Rhythms and discontinuation of service

[Anonymous Coward]

Rhythms here in Milwaukee is pretty great. They handled the Telocity part of the network here. When Rythms shut down 10SEP01, Telocity put everybody on a dialup while they switched the local carrier. What sgreat about this is that Rhythms never turned their equipment off I believe. It is now 26SEP01 and my SDSL is still working without hinge 16 days after shutdown. Northpoint I think actually turned their equipment off.