StarNet Severs DSL Ties with Covad

The national wholesaler-reseller gives customers until the end of the month to find another provider for DSL access after canceling its deal with Covad.

by Jim Wagner of internetnews.com [December 1, 2000]

Chicago-based StarNet, a dial-up, ISDN and DSL access provider to ISPs, is giving customers until the end of the month to find another provider after canceling its deal with Covad.

StarNet's customers around the U.S. received a disturbing e-mail in their inbox this week, giving them until Dec. 31 to find another high-speed DSL provider.

StarNet claims substandard service is the primary reason why the company cut copper ties with Covad.

In a letter obtained by internetnews.com, Russ Intravartolo, StarNet chief executive officer, wrote that while a customer's service should remain intact until the end of the moth, there is no guarantee that it will support DSL services through to New Year's Eve.

"While your existing StarNet DSL circuits remain active at this time, StarNet cannot guarantee DSL service for any fixed period of time. Accordingly, StarNet recommends that you take the necessary steps to transfer your StarNet DSL services to another Covad DSL wholesaler so that your customers experience seamless migration of services through your new provider."

Intravartolo said the news comes as no surprise to his customers, who've known the end for Covad was coming since October.

"Our customers have known as far back as July that we weren't taking any new orders for DSL from Covad," Intravartolo said. "Since then, we've just been providing DSL to customers with existing orders. In October, we stopped taking new orders altogether. That gave them plenty of time to find a new reseller, we just needed to put a date on the end of the service."

StarNet's chief also noted that DSL pricing advantages reside with former "Baby Bells" like SBC Communications, which can charge flat-bottom pricing and still profit from providing high-speed access. StarNet, on the other hand, is forced to keep prices competitive and try to glean a profit out of nearly null operating margins.

Intravartolo said the only reason why ISPs would contract with StarNet for DSL access is because the smaller firm could provider superior customer service, something he claims Covad could not deliver. As a result, non-payment by front-line customers ate backward through the supply chain—leading to ISPs to forego payments to StarNet, which was still expected to foot the bill and pay Covad.

"Ending our relationship with Covad is not easy for us," Intravartolo said. "We were one of Covad's first customers and have been with them for a couple of years. But the fact of the matter is we were losing 50 cents on every dollar we gave them. We stayed with them in the hopes they would turn it around, but it didn't happen. We were looking for a better future that never came."

On Jan. 1, 2001, customers will be summarily disconnected, the letter said, but StarNet support staff will be available to make the transition as smooth as possible. ISPs who signed up Friday will get a refund for the $250 DSL setup fee.

Intravartolo expects the impact on Covad's operation to be minimal, as most ISPs are switching to other Covad resellers. For the most part, reselling Covad digital subscriber lines only accounted for seven percent of StarNet's total revenue. Of StarNet's 930 ISP customers, about 25 percent, or 251 service providers, utilized its DSL services.

StarNet officials said the company would continue to offer dial-up and ISDN access, as well as its package of outsourced services for ISPs. It is unclear whether the company will try to strike a deal with another DSL provider down the road.

Covad is the fourth largest DSL provider in the U.S., with about 205,000 lines in use across the nation. The company has come under fire lately due to its disappointing third quarter performance.

The same is happening to other Internet-based companies across the industry, with Wall Street investors hammering stock values of the three data-transporting providers in the U.S.-- Covad , Rhythms NetCommunications and NorthPoint Communications. All three DSL-based companies have stock values below $3 a share, after enjoying highs between $30-$50 a share earlier this year.

The three data CLECs claim they are caught between the wholesalers and ISPs who don't pay for their service, and the telecoms who own the network. The wholesalers claim they aren't getting paid by their customers because of poor service and a difficult provisioning process, while the telecoms still demand payment for the lines it is forced to share with the CLECs.

It's an ongoing battle that's melting down the value of copper-based high-speed services. Covad was unavailable for comment on the StarNet letter at the time of publishing.

— End

     

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