AT&T Plans to Build Its DSL Market Position With Purchase of NorthPoint Assets


Archived Published: 26 March 2001 ID: G0096953

Analyst(s):

  Free preview of Gartner research

Summary

AT&T has agreed to buy the assets of U.S. digital subscriber line (DSL) provider NorthPoint Communications. The move will boost AT&T in the broadband access market, but the company's impending breakup could retard its progress.

News Analysis

Event

On 22 March 2001, NorthPoint announced an agreement to sell its assets to AT&T for $135 million. The U.S. Bankruptcy Court approved the sale as a way to pay NorthPoint's creditors. Federal regulators must also approve the deal, expected to close by late May 2001. NorthPoint said it will lay off employees and transition customers to other DSL providers.

Analysis

AT&T has agreed to buy NorthPoint's assets, not its ongoing operations. NorthPoint will no longer provide DSL service after the deal closes in May 2001. Hence, NorthPoint customers will need to transition to another DSL provider as soon as possible. That provider could be AT&T, but enterprises would have to transition to AT&T's current DSL service as they would to any other provider.

In the long term, this move will benefit AT&T. To start with, the price it will pay for acquiring the assets of a company engaged in building out a nationwide network is very good — perhaps one-half or one-third of their real value. More importantly, the assets will help AT&T move more quickly to become a DSL provider rather than primarily a reseller (it now resells Covad Communications' and Rhythms NetConnections' services). To be sure, AT&T will still have partnerships and sell through other channels, but it will likely choose for its primary business model that of an end-to-end provider.

Gartner believes that this end-to-end model will generally replace the wholesaler model, in which the DSL provider had to pay its competitor, the local-exchange carrier, for access to the local loop and share profits with the reseller. Other interexchange carriers, such as WorldCom and Sprint, will likely move toward direct sales as well. Finally, this trend could affect the reseller arrangements that large carriers have with independent DSL providers. For example, WorldCom resells service from Rhythms, and SBC Communications resells Covad's service.

The NorthPoint assets will become part of the AT&T Network Services unit, and AT&T will likely use the assets to develop enterprise-quality services for teleworkers and for small and branch offices as well as a consumer service. This deal would appear to give AT&T a complete range of options for broadband Internet access, including DSL, cable modem service and fixed wireless. However, the cable modem service belongs to AT&T Broadband, and when AT&T Broadband is spun off by 2002, the two units may end up competing against each other in the broadband access market.

Analytical Source: Jay Pultz, Enterprise Network Strategies

© 2001 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartners research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

Why Gartner

Gartner delivers the technology-related insight you need to make the right decisions, every day.

Find out more

Call +1 855-515-4486 or contact us

to become a Gartner client.