CLECs Get Jump on DSL Drive

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Telco hype notwithstanding, the biggest early force behind
DSL is proving to be a phalanx of new-generation competitive local-exchange carriers that
have just launched services in several major cities on a much broader scale than the
incumbents in those markets have.

Cities where telcos have yet to put digital-subscriber-line
facilities in place, but where DSL of one flavor or another is now available commercially,
include Boston, New York and Chicago. CLECs have targeted many more nontelco cities to
come online shortly, including Philadelphia, Detroit, Dallas and Houston.

And the new CLECs that are supplying these services are up
and running in several cities where telcos have also launched, including San Francisco,
Los Angeles, San Diego and San Jose, Calif., and Washington, D.C.

Leading the charge in terms of cities launched to date is
San Francisco-based NorthPoint Communications Inc. The company said last week said that it
had moved beyond its home base to begin providing high-speed-data connections in Boston,
New York, Chicago, San Diego and Washington, D.C., with three more cities slated to come
online before the year is out.

In Boston, where the expansion began in late September, the
CLEC has already signed up a number of Internet-service providers to make use of its
facilities for delivering services to businesses and the SOHO (small-office/home-office)
market, said John Stormer, vice president of marketing at NorthPoint.

"We're on target for supplying the number of
lines that we're committed to in Boston," Stormer added. "We're very
pleased with the way that demand is shaping up."

But he acknowledged that DSL is still a tough sell in the
case of many ISPs, as their point of reference on the technology has been the spotty
performance of the incumbent LECs or phone companies.

"To some extent, we're laboring under the cloud
of perceptions surrounding the long-term experience of the ILECs, where DSL is still
perceived as being in trial mode," Stormer said.

Nonetheless, NorthPoint's message is clearly getting
through. In Boston, for example, the lineup of NorthPoint clients includes Concentric
Network Inc., Epoch Internet, Flashcom Inc., iCi Inc., Shore.Net, Verio Inc. and the @Work
unit of @Home Network. @Work announced last summer that it would be using NorthPoint DSL
facilities to access commercial customers nationwide.

NorthPoint has priced its SDSL (symmetrical DSL) transport
service at between $75 and $199 per line, per month, at speeds ranging between 160
kilobits per second in both directions to just over 1 megabit per second, Stormer said.

The technology -- based on the 2B1Q line-modulation
technique employed in T-1 and ISDN (integrated services digital network) -- not only
supports delivery of services over longer loop lengths than is possible with the ADSL
(asymmetrical DSL) favored by most telcos, but it also supports four times the line
density per rack in the central office, which is crucial to getting beyond the congestion
problems that many entities are experiencing with ADSL.

For example, low capacity in central offices has frustrated
efforts by U S West's U S West.Net to meet demand in territories where the carrier
has rolled out ADSL, said Eric Bozich, executive director for Internet-service development
at the carrier's ISP unit.

"We'd like to see the vendors take a big leap in
terms of the number of line concentrators that one box can handle," Bozich said.

Along with NorthPoint, the most aggressive CLECs on the DSL
front include Rhythms NetConnections Inc. and Covad Communications Co. Those companies
began offering commercial services in Pacific Bell's territory at the beginning of
the year, as they set out to complete interconnection and colocation agreements in other
places around the country.

This groundwork has given them a head start in securing
limited space within the central offices, where it typically takes four months for the
ILEC to deliver an equipment cage once the often drawn-out negotiations for
interconnection and colocation space are finally completed.

But having broken through these time constraints in key
markets, the pace of deployments is speeding up, as the precedents set in previous talks
smooth the way for future connections, Stormer said.

"We think that the worst of these battles are behind
us," he added.

With colocation space limited and a finite number of lines
available, ISPs that see DSL as an important opportunity can be expected to aggressively
market services as these cities come online.

These ISPs will often turn to more than one CLEC supplier
-- as well as to the incumbent, when facilities are available -- to ensure themselves
sufficient coverage to meet market demand.

"Our aim is to achieve the largest possible footprint
in these markets through a combination of relationships that includes the local ILEC and
CLECs," said Mark Fisher, senior vice president at the network service-division of
Concentric, a leading national ISP.

Having offered services commercially over various
DSL-technology iterations in Northern California, Concentric is confident that the
technology will support a robust set of services, from residential access to last-mile T-1
equivalency, at extremely competitive rates, Fisher said.

By having a mix of technical and carrier options, the
company believes that it can create a package of services to suit individual needs and
line conditions, while saving the end-user the hassle of sorting through all of the
options.

"There are a lot of important distinctions in
technical performance that we needed to understand in order to protect the customer from
having to understand all of these distinctions themselves," Fisher said. "But,
having done that, we don't believe that you have to wait until every [facilities]
offering looks the same and everything is standardized to be able to go out and deliver
something that offers tremendous benefits to the customer."

In a recent customer-satisfaction survey in California,
"the average score was above 90 percent satisfaction, which is quite interesting when
you consider that people often have expectations for a brand-new service that exceed
actual experience," Fisher noted.

A strong word-of-mouth sales pace is another sign that
"we have something that's hot," he added.

What makes the CLECs especially valuable as DSL sources for
ISPs is their cooperation in helping the latter to provide reliable and niche-specific
services, asserted Buddy Cunningham, vice president of sales and marketing at Verio, a
fast-growing ISP with a nationwide presence that includes 39 of the top 50 markets.

In addition to working with NorthPoint in Boston, Verio has
been operating commercial DSL services with Covad in San Francisco and with Rhythms in San
Diego. Verio has found that these companies offer an end-to-end view of facilities
performance that allows the ISP to respond immediately to problems, in contrast to the
telcos' tendency to block off access to such information, Cunningham said.

CLECs are also doing more to enhance end-user satisfaction
by facilitating ISP management of enhanced services, Cunningham said. "One of the
neat applications along these lines involves support for phone service over the DSL link,
which allows the remote user's phone to operate as an extension to the office PBX
[private-branch exchange]," he added.

Along with supporting bandwidth-consuming applications --
such as LAN-to-LAN (local-area network) connectivity and LAN access over virtual-private
networks from worker homes and other remote locations -- DSL opens a way for ISPs to
exploit the growing trend in third-party-managed distribution of server-based
applications, Cunningham said.

"You open a huge value chain for Web hosting when even
the smallest companies can get access to such applications over fast data links," he
added.

Where LECs tend to set tariff rates on their facilities and
let ISPs fend for themselves after securing basic agreements, CLECs are offering a wide
range of options for ISPs, from hands-off connectivity to full turnkey support.

For example, Rhythms -- which is employing rate-adaptive
ADSL and other DSL flavors over gear supplied by Paradyne Corp. -- is positioned to offer
ISPs anything from a basic access-support service to a full suite of bundled services
including secure Web-publishing service, fire-wall protection and other amenities, said
Gloria Farler, vice president of marketing at the Denver-based CLEC.

"We've made the service as ISP-friendly as we
can," Farler said. "That's why you're going to see DSL making a bigger
impact from this side of the market than you've seen so far from the incumbent
side."

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