Wholesale: DSL Provider Stays Course

Posted: 10/2000

DSL Provider Stays Course
By Khali Henderson and Ken Branson

Following the merger of its wholesale DSL business with that of megacarrier Verizon Communications
(, NorthPoint Communications Group Inc.
( expects to bolster its carrier’s carrier strategy by doubling the coverage and resources for improved support services. The companies expect the deal
to be completed by mid-2001.

The new NorthPoint, in which Verizon has a 55 percent ownership stake, will include Verizon’s existing wholesale DSL business and broadband network assets, including more than 1,700 COs in 84 metropolitan statistical areas (MSAs). It also will benefit from an $800 million investment by Verizon–$450 million of which will fund its network expansion.

“They were running out of money,” says one analyst of NorthPoint. They needed cash to build their network; they couldn’t go back to the equity markets; their stock was down. What were they going to do?

Indeed, NorthPoint reported negative EBITDA of $79.8 million for the second quarter, compared to $29.2 million for the second quarter of 1999 and $61.7 million for the first quarter of 2000. NorthPoint reported a net loss of $112.1 million, compared to $79.9 million in the first quarter and $37.2 million for the second quarter of 1999. Revenues were $24.4 million, an increase of 22 percent over the $20 million reported for the first quarter, and a tenfold increase over the $2.5 million reported for the second quarter of 1999.

Company officials attribute the losses to the cost of building out the network–NorthPoint entered 14 new markets in the second quarter, and is now in 1,500 COs in 99 markets in the United States.

While Verizon has a retail client base,
NorthPoint will maintain a wholesale-only focus. Verizon’s ISP, Verizon Online, will resell NorthPoint’s DSL service nationwide. In addition, NorthPoint brings more than 200 channel customers to the deal.

Geographically, Verizon and NorthPoint are a “good match,” says Fritz McCormick, an analyst with the Yankee Group
( “The potential pitfall of this arrangement is Verizon’s handling of the ISP channel relationships NorthPoint has worked so hard to cultivate. If Verizon chooses to place its own ISP as the de facto retail partner, existing ISPs are likely to migrate to a new DLEC [data
LEC] partner.”

Analyst Carl Garland of Current Analysis Inc. ( agrees that if the new NorthPoint is to remain a separate credible entity,
"Verizon will need to develop a compelling message to convince competitors that the ‘new’ NorthPoint will not cut Verizon sweet wholesale deals.”

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