AT&T's Vocal Point

AT&T's bargain-basement purchase of NorthPoint Communications' DSL network could signal its most aggressive move into local telephone service since it bought its way into the cable business.

For a much smaller investment — $135 million vs. the $48 billion it paid for TCI in 1998 — AT&T has purchased valuable real estate in 1,978 central offices nationwide. AT&T says it plans to use NorthPoint's network to sell local and long-distance voice as well as high-speed data to consumers.

The company already sells Internet access to thousands of business customers in 100 markets over DSL lines it purchased from Covad Communications. The NorthPoint purchase could fold into that strategy as well, says Manish Malhotra, director of broadband business services for AT&T. "But that would be separate from anything sold to consumers because we are separate operating units," he adds.

AT&T purchased NorthPoint's DSL equipment and its colocation space in a bankruptcy proceeding that concluded March 22, and is scheduled to take control of those assets late next month. AT&T didn't buy NorthPoint's 110,000 customers, leaving them to scramble for new service when NorthPoint shut down March 28.

That strategy puzzled many, but it makes sense given AT&T's decision to focus on consumers, says Adam Guglielmo, an analyst with Telechoice.

"NorthPoint's customers were mostly businesses," he says. "AT&T wants to provide VPNs [virtual private networks] for voice and data services to consumers, and that may not be possible using the equipment NorthPoint had in place. This may be primarily a real estate deal."

That real estate is in CO colocation cages in major metro and suburban areas throughout the country. NorthPoint had a saturation strategy when it entered markets, wiring 100 COs in Chicago and its suburbs, for example.

Copyright © 2004 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in The Net Economy.