DSL Prime News: The Inside Source — continued

International

• Alcatel Philippines says customers have installed 12,000 DSL lines, with 30K to 40K installs coming soon.

Flackery

• SBC, looking for some good news in a bad quarter, put DSL as the lead in their quarterly earnings, and pointed out the 183K quarter was their best in several quarters. One story had "strong gains" and the Forbes reporter was snookered. In fact, SBC was geared up for 350K a quarter by the end of 2000, and 183K remains extremely disappointing, down from the claim in the year earlier quarter. It's less than Verizon did last quarter, and not much more than BellSouth's previous quarter—in more than twice the territory. It's also little higher than the new customer totals of SBC in several quarters last year.
  
  
• The $500B economic payoff from broadband appeared in a Verizon press release, based on a Bob Crandall study Verizon funded. Common sense makes clear it's nonsense, as would even a quick reading of the actual paper [.pdf]. Totally unsupported conclusions.

Competition

• BellSouth has launched Gig-E in Atlanta, with IBM the first customer.
  
  
• Cogent, primarily a Gig-E provider, bought building rights contracts from OnSite Access in their bankruptcy filing.
  
  
• Wanna bet $2,000 that by 2007 that a telco will go broke? Narad's CEO, Andy Chapman, is ready to fade your bet. Bob Metcalfe, Danny Briere, and others are enthusiastic about Narad Networks, which uses the cable frequencies above 860 megahertz to deliver fast Ethernet speeds and higher. Most cable companies have near term plans to reach the business market, and Narad delivers speeds far beyond standard cable modems aimed at business customers. Paul Johnson of Robbie Stevens is on record with a similar position. I disagree—U.S. telcos have major distortions in their financial reporting, but they remain inherently highly profitable.

People

• Simon Romero has been temporarily pulled from the NY Times telecom beat to cover the coup in Venezuela. He reports the crucial role of billionaire beer baron Gustavo Cisneros, who hosted regular meetings of the future plotters. Cisneros is a partner in AOL LA. He shares a $500M investment fund with Hicks Muse, who invested in Rhythms, ICG, and Teligent. He also owned a share of Ron Lauder's now bankrupt telecom outfit RSL COM. Cisneros, the Brazilian Safras, and Carlos Slim of Telmex and SBC are the key Latin telecom outfits, alternately co-operating and competing with the U.S. and European multinationals.
  
  
• Cliff Young of Internet Connect is so convinced of the strong corporate market for VPN, he's re-assembled the team (60 people, he says) to form Clearpath Networks. He thinks a strong SLA is the key to business sales.
  
  
• Robert MacMillan is now Tech Policy Editor at Washingtonpost.com. His fellow tech policy reporters from WP subsidiary Newsbytes.com, David McGuire and Brian Krebs, are joining him there. Between the three of them, they've consistently scooped the paper itself. Robert promises to continue to report on the latest technology policy developments as outlined by the movers and shakers in the field, as well as other influential blowhards.
  
  
• Scott Bender, a key part of Mark Floyd's team, is leaving Efficient Networks/Siemens after several years as their public face.
  
  
• Jim Behanna worked on the AT&T account at Jetstream, and rapidly landed at competitor General Bandwidth after Jetstream closed the doors.
  
  
• Joe Zell led U.S. West's DSL effort when they were the world leaders, and now has become a venture capitalist at Grotech in Maryland. He will focus on Mid-Atlantic and Eastern opportunities, especially B and C rounds for mid-cap companies.

Wall Street

• Sonicblue, makers of Replay TV and Diamond Rio MP3 players, raised $62M and video producer Myrio raised $6M. BigBand got $27M, as their VOD servers are in place for 500,000 cable homes.
  
  
• IP Communications, a DLEC from Texas, got $20M more from GE, CSFB-DLJ, and Brookwood.
  
  
• Martin Dropkin at CSFB picked up the coverage on Allegiance with a hold, a rare and gutsy move.

2 + 2 = 4

• Most of the commentators being trotted out for policymakers have financial ties to the companies involved. In 15 minutes, I could trace five of the eight "top economists" announcing today to money from Verizon or SBC. That doesn't mean, for example, that a Yale Professor doesn't have a right to an opinion. But at least they should acknowledge the conflict of interest when they take a stand. I have similar conflicts, selling advertising to companies I cover; at least you see who pays us, and can judge our fairness.
  
  
• Cable companies continue to report losses, while Wall Street still values them on inappropriate measures like EBITDA. One day, the Street will catch on. This worries me, because competition is weak enough without the cable side being crippled by collapsing stock prices.
  
  
• Almost all companies have major distortions in their earnings statements; several billions in the biggest telcos alone. This means the real price to earnings ratio of most companies is much higher, and investments riskier.
  
  
• A long term 10 percent return on investment in real terms is impossible for a large entity, like the GM or SBC pension funds. The economy is only growing at 2-5 percent at best, so a 10 percent or even 8 percent return would have to come out of consumer income. Capital now receives 35-40 percent of the national product; two decades of 10 percent return would raise that to an unreal 60-80 percent, and wages only a third of output. That would make the Argentine economy look like paradise. Reality over a long term is 1-4 percent over inflation. Floyd Norris in the Times pointed out how much of Verizon's earnings (and management bonuses) come from this illusion; Shawn Young in the WSJ traced 20 percent of SBC's earnings to similar overstatement.
  
  
• 2 + 2 = 4 will be an occasional section, covering items that aren't news but perhaps are overlooked.

Copyright 2002 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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