NorthPoint Pain Won't End

As more than 100,000 Internet users nationally continued to suffer from DSL withdrawal, state regulators jumped in to try to force a smoother migration of customers from now-defunct NorthPoint Communications to other Digital Subscriber Line service providers.

The California Public Utilities Commission tried the brute-force route, ordering NorthPoint to continue operating its network for 30 days while its Internet-service provider customers move their customers onto other networks. . That followed a Texas decision to direct Southwestern Bell to "hot cut" former NorthPoint DSL customers to other DSL providers within five days and scheduled hearings around the country by other state regulators, including those in Illinois.

NorthPoint's prepared response to the California ruling held out little hope for the roughly 40,000 disconnected customers in that state. Michael Wood, an attorney for NorthPoint, told the Associated Press that while the company "would love to comply," it has no money with which to operate its national network.

As most ISPs continue to scramble to move their customers elsewhere, they are also communicating to customers their reasons for staying with NorthPoint to the bitter end.

One big reason, says Harry Taxin, president and CEO of MegaPath Networks, a major national customer of NorthPoint, is that companies faced fines of up to $1,000 a line for switching customers to other DSL providers once the bankruptcy proceeding had begun in January. In addition, because NorthPoint controlled the copper lines into the customers' sites, shifting DSL providers would have meant ordering additional new lines from the incumbents, an expense few ISPs wanted to take on.

"It's hard to comment on NorthPoint, because I haven't gone through what they did, and I never want to," says Taxin. "To maximize the value of the company, they wanted everyone to stay put and be happy. In hindsight, terrible decision for customers."

NorthPoint officials thought, until the end, that they might have been able to find a bidder willing to buy the network and its customers, instead of just the network assets, as AT&T did. One stumbling block there, says Dan Foster, chief marketing and sales officer, is that NorthPoint doesn't actually own the end customers, just a lot of contracts with ISPs that do own the customers.

"It's my understanding they want a direct relationship with the customer," says Foster. "The irony is that, after we were handcuffed to the car as it went over the cliff, the customer base didn't bring any more assets to the sale. If we had left a month earlier, it would have been much better for 110,000 customers."

MegaPath began ordering new services for its customers from Rhythms NetConnections and Covad a week before the bankruptcy and is working to shift customers as quickly as possible but expects the process to take an average of a month. In the meantime, they are offering dialup connections at no charge.

There will be damage control required, Taxin admits, particularly for customers who may be wary of moving their service to another CLEC.

"We've got to do some repair work and talk to the customer base about redundancy and backup," he says. "We still have a situation that DSL is good because it's there. The copper is in place, most businesses aren't reached by cable and broadband wireless is still spotty."

Most of the NorthPoint-served customers are businesses, and while they may be lured by the security of ordering DSL from an incumbent telco, they aren't likely to be as happy with the product. The incumbents sell Asymmetric DSL, with very high download speeds and much slower upload speeds, compared to the Symmetric DSL that NorthPoint and other data CLECs provide. SDSL is two-way service at speeds ranging from 128 kilobit per second up to 1.5 Megabits per second.

"The speeds are different and the ADSL service offers no quality-of-service guarantee," says Foster. "It's a totally different product, intended for residential use."

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