Level 3: Dialup Not Dead

Carrier pays for dialup assets, no matter how 'mature,' in what must be a good sign for the ISP industry.

by Colin C. Haley of internetnews.com [April 5, 2004]

The battle for broadband continues. ISPs are slashing monthly rates, increasing data transfer speeds and unveiling new services such as audio and video streaming to entice high-speed customers. Does that mean dialup is dead? Not quite.

That's the message Level 3 Communications sent last week by buying the wholesale dialup access business of ICG Communications for $35 million.

Like Level 3, ICG provides wholesale dialup access to some of the largest ISPs in North America, including America Online, EarthLink, MSN, and United Online.

A Level 3 spokesman was not immediately available, but in a statement CEO James Q. Crowe said the moves makes sense from strategic and financial standpoints.

"While the dial access business is undoubtedly maturing, it continues to generate very strong margins and cash flow for our company, given the unique architecture and efficiencies of our softswitch platform," Crowe said.

The pickup will put $35 million in new revenue into Level 3's coffers this year. The Broomfield, Colo., company will shift most of ICG's customer traffic onto its own network infrastructure over the next six months. In addition, the transaction allows Level 3 to expand into select secondary markets it's not currently in.

For Denver's ICG, the sale is part of a larger strategy to shed non-core assets and buttress its balance sheet.

Today's acquisition is not the first time, Level 3 has snapped up a dialup business. Last year, it purchased the assets of Genuity for $137 million, in large part to gain access to the bankrupt Woburn, Mass.-based company's managed modem contracts with AOL and other ISPs.

While industry watchers agree that broadband will eventually replace dialup, the older, slower technology won't just vanish. For many users who have broadband at work, slower home connections are just fine for e-mail and other low-bandwidth activities.

A recent survey by Jupiter Research forecast said there will be 46 million U.S. households with Internet connections in 2008—half of which will connect via high-speed, always-on technologies.

That's not to say that Level 3 is betting its future on a technology who's days are numbered. In recent weeks, the company has made a push to carry VoIP traffic.

Earlier this week, it announced that 8X8, a broadband VoIP and video communications company, will use Level 3's network. The company also rolled out a channel partner program that allows resellers to offer VoIP services using Level 3's infrastructure.

— End