Four Broadband ISPs Fold

Covad stands alone in an attempt to reconnect abandoned DSL customers as four high-speed ISPs succumb to financial pressures.

by Jim Wagner of internetnews.com [December 12, 2000]

This week Flashcom Communications, Zyan Communications, Relay Point and FastPoint filed for federal bankruptcy protection. Succumbing to financial pressures, the defunct firms will eventually abandon thousands of digital subscriber line users across the nation.

Covad Communications Group is scrambling to adjust its business plan in an attempt to provide DSL access to more than 32,000 castaway customers.

It's unclear how the bankruptcies will affect other national DSL providers. NorthPoint Communications and Rhythms NetConnections were unavailable for comment on the number of customers in its network effected by the news.

Wall Street reacted quickly, shooting the messenger bearing the bad news. Covad, which announced its adjusted business plans Tuesday morning, immediately dropped 50 cents per share to $2.5, while NorthPoint and Rhythms remained largely unchanged.

Management at Covad Communications was forced to rewrite its business plan and adjust its financial scheme to stay afloat after being informed of the bankruptcy court proceedings for the four firms. The data carrier has been feeling the financial strain for months, forced to carry the load of failing ISPs unable to pay their bills on its profit and loss statement.

In order to improve its profitability outlook, Covad is giving preference to small business and premium residential customers who sign up for the high-end subscriber plans. Covad also plans to promote self-installs for new users, in order to cut down on the costs associated with DSL installation "truck-rolls."

Many low-use residential customers remain at the back of a growing line of wannabe subscribers waiting for high-speed Internet services to be installed.

Chuck McMinn, Covad chairman, said it's business adjustment is a necessary step for the company to avoid disaster.

"We are going to grow the business with lines that get us to break-even and profitability faster," McMinn said. "Not only will this have an immediate impact, but we expect to see long term improvement in our financial performance."

Steps like these, and its decision to ramp down central office equipment deployment nationwide, will help decrease the company's losses, McMinn said.

Covad officials expect these adjustments to increase its earnings by more than $100 million by the end of next year, while also decreasing its monthly cash burn of almost $15 million.

"In comparison with prior analyst expectations, we expect to spend approximately $200 million less in cash in 2001 as a result of our modified plan," McMinn said. "Our national network is one of the largest in the country. It's size and scope is very attractive to companies that want to do business with one nationwide supplier to both small business and residential services."

Covad's business customers include Sony Corp., which just last month signed the company to provided Sony-branded DSL services to its customers. It would bring a windfall to Covad if it can deliver DSL services to Sony on plan. Sony's two premier products, Vaio and PlayStation2, rely on premium Internet connections, part of which are supplied by Covad.

There is no timetable established for transitioning customers from the bankrupt ISPs to other providers. McMinn claimed it was too early to make a prediction and said his company would be in a better position to answer that question next month, during the public release of its fourth quarter performance.

Monday, Covad launched its its Safety Net Program designed to switch customers from ISPs like Flashcom to other providers using Covad's DSL network. Flashcom's move to protect its assets in bankruptcy court meant that even Covad's own Covad.net ISP service had to scramble to pickup new providers.

— End    

Related articles:
	[Oct. 18, 2000]	Delinquent ISPs Cause Covad 3Q Pain
	[Aug. 29, 2000]	Analysts Issue Warning on Covad