AT&T Buys NorthPoint's Assets

AT&T confirms it signed an agreement to acquire all of the assets of NorthPoint Communications. U.S. Bankruptcy Court approves the agreement valued at approximately $135 million—Puts MSN out of DSL biz.

by ISP-Planet Staff [March 23, 2001]

AT&T Corp. efforts to offer high-speed Internet service could get a boost now that the telecom giant has the go-ahead to buy the assets of bankrupt DSL provider NorthPoint Communications.

The transaction was approved by a San Francisco bankruptcy court and is valued at about $135 million. It includes essentially all the assets of Emeryville, Calif.-based NorthPoint, which filed for Chapter 11 bankruptcy protection in January of this year.

AT&T said it would acquire NorthPoint's nationwide collocation contracts, network equipment, systems and support software, and related assets, as well as two leased buildings in Emeryville. The transaction closing is subject to regulatory approval and other conditions and is anticipated to be completed within 60 days.

AT&T said it was delighted to be acquiring NorthPoint's DSL assets— with good reason. The venerable phone firm is undergoing a major corporate restructuring in order to develop new revenue streams as its lucrative long-distance business is being eroded by rival regional Bells, price competition with Sprint and WorldCom, and burgeoning Internet telephony technologies like Voice over DSL.

The feds
Pantelis Michalapolous, an attorney with Steptoe & Johnson who frequently works before the Federal Communications Commission, said he did not think federal regulators would oppose the deal.

"I think that there will be little FCC concern," Michalapolous said. "The regulators approved the AT&T acquisitions of DCI and Media One, which were much larger plays from a regulatory and antitrust perspective."

However, Michalapolous said that AT&T's controlling interest in cable broadband access provider Excite@Home might be a problem for the regulatory agency.

"Remember, Excite@Home is controlled by AT&T, which could be a cause of concern depending on the market definition," Michalapolous said. "For example, suppose that 70 percent of U.S. high-speed users subscribe to Excite@Home. This could be a case for too much control of a market segment and might require that the FCC apply conditions to the NorthPoint deal that would require AT&T to divest some of its control of Excite@Home."

Family size
However, the FCC might be less worried about such competitive broadband issues when AT&T completes its self-proposed breakup by 2002. Since there will be four AT&T companies—AT&T Wireless, AT&T Broadband, AT&T Business, and AT&T Consumer. The AT&T Consumer division will operate as a subsidiary of AT&T Business, while the other two operational units will be represented by independent, asset-based common stocks.

Since NorthPoint's assets would probably end up with the AT&T Consumer division, it's important to find out what the company's overall plans for consumer and wholesale DSL services are.

Earlier this week AT&T appointed Betsy J. Bernard as the new chief of the AT&T Consumer unit. Analysts will be watching her statements on DSL very closely to determine what it will do with wholesale connectivity.

In the meantime, Robert Aquilina, co-president of AT&T's consumer division, said the deal would help the company move aggressively to roll out high-speed Internet access and DSL services to consumers and businesses nationwide.

The hubs and other assets that AT&T is picking up as the result of its purchase should also help the company build new technologies for local and long distance calling, as well as broadband services and virtual private networks.

Further issues
Dave Burstein, editor of the trade publication DSL Prime, said ISPs are scrambling to cut deals with rival DLECs like Covad and Rhythms in order to keep their DSL subscribers connected.

"I expect 81,000 subscribers to be cut off," Burstein said. "Providing DSL for resale to ISPs is a low margin business and providers as diverse as panix.com and the MSN will be affected if AT&T starts dropping services."

But Burstein added that Covad's so-called "Safety Net" program—crafted to catch DSL customers cut off from their lines—would not be enough to thwart AT&T's potential termination of reseller services to ISPs.

"Covad and Rhythms are not prepared to handle that kind of volume," Burstein said. "And the telcos won't make switching lines easy for them either."

One DSL provider isn't wasting any time informing clients what the AT&T-NorthPoint deal means to their DSL service. IBS Networks posted a public notice to their customers informing them of the deal and AT&T's disclosure that it was not purchasing NorthPoint's physical lines.

"What the NorthPoint sale means to you: Your DSL line will be shut down by NorthPoint / AT&T imminently. To continue service, you need to order new service from IBS Networks or another provider. More importantly, they have disclosed that the purchaser will not purchase the lines. This means that all NorthPoint lines are in imminent danger of being shut off," the statement read.

IBS officials said that the NorthPoint sale is devastating news to the reseller and although the company has no control over NorthPoint, it offers its sincerest apologies to all affected customers.

"We will try to get our business customers reconnected with a different carrier as soon as possible. For our residential customers, unfortunately, there is nobody that we know of that offers residential SDSL and IDSL at a decent price. This means that to keep the same kind of low pricing that you are used to with us, you would have to switch to an ADSL line from a different ISP."

Other ISPs reselling NorthPoint DSL services are likely to follow suit and abandon residential users in pursuit of more profitable business-class connections or search for a financially reliable DSL partner.

Microsoft, which relied on NorthPoint for its high-speed service, Friday revealed that it will soon be unable to provide subscribers with the MSN DSL service because NorthPoint Communication is unable to provide wholesale access to MSN.

In a letter to customers, MSN said, "Due to this unfortunate circumstance, your DSL service will be discontinued within the next week...We are still in the early stages of the broadband revolution. MSN remains committed to DSL as a viable broadband solution and delivering the best broadband access experience for our customers."

AT&T's gain has proven to be Microsoft's loss, observed Rob Lancaster, an analyst with Yankee Group's Internet marketing strategy group.

"Microsoft had a vested interest in NorthPoint. It is a surprise to me that AT&T was able to sneak in the back door and pick up this deal at a bargain-basement price," he told internetnews.com. "NorthPoint was a DSL provider for MSN. Certainly MSN will not continue to get its DSL from AT&T because it is too competitive. With this acquisition, AT&T WorldNet gets a leg up while Microsoft's broadband strategy becomes more shaky."

—End