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100,000 Subscribers of NorthPoint DSL Face Disconnection

Net: AT&T bought the provider's assets but is not picking up its customers, who are scrambling to find other carriers.


More than 100,000 customers surfing the Internet through high-speed phone lines may be disconnected from their service this week after AT&T Corp. decided not to pick them up when it bought bankrupt NorthPoint Communications Group Inc.'s equipment and network.

The deal, struck in Bankruptcy Court late last week, has sent the affected consumers--many of them in California--scrambling to line up new carriers for their digital subscriber line, or DSL, service.

DSL, a service typically offered by phone companies in partnership with Internet service providers, carries data signals over copper phone lines at speeds up to 25 times faster than a typical dial-up modem.

More than 20 Internet service providers nationwide provide DSL service to customers using NorthPoint's network, including Telocity,, MegaPath, XO Communications, InternetConnect, Verio and others.

The group of ISPs is trying to head off mass customer disconnections by raising the money to fund NorthPoint's DSL operations until customers can be switched to another network. NorthPoint has said it needs $2.4 million per month to keep its network running.

"We are working diligently and around the clock to have the bankruptcy of NorthPoint have as little impact on our customers as possible," said Ned Hayes, chief financial officer at Telocity, which uses DSL connections from NorthPoint as well as from rivals Rhythms NetConnections, Pacific Bell and other companies.

The bankruptcy judge, along with NorthPoint's bankers, could decide today whether the ISP funding is sufficient to stave off the network shutdown for at least 30 days.

Meanwhile, Internet providers are warning customers that the NorthPoint's network shutdown is imminent, and that their high-speed connection could be lost. Several companies have offered compensation and instructed customers to set up standard dial-up accounts to use while they work to find replacement providers.

AT&T did not elaborate on its reasons for not absorbing NorthPoint's customers.

"This is the deal that made the best sense for us and our needs," said Mark Siegel, an AT&T spokesman.

Industry analysts believe AT&T wants to avoid having to offer DSL service at the prices and terms set by NorthPoint, especially because the company prefers to sell services in a bundle that includes long-distance phone service.

In addition, because AT&T has its own Internet service provider, the company is probably reluctant to be a wholesaler to competing ISPs such as MSN and Telocity, according to Dave Burstein, editor of the industry newsletter, DSL Prime.

For many customers, the lost service comes after months-long waits for installation and after paying a hefty price for a special DSL modem. In most cases, the DSL modem sold for use with NorthPoint's network cannot be used with rival carriers' equipment--which could force customers to buy yet another modem.

About 60% of the affected customers are small and medium-sized companies, for whom the high-speed connection has quickly become an integral part of their business. In many cases, replacement DSL service will cost more and could take several weeks to establish--if it's available at all.

In the last year, DSL service has become a strong competitor to high-speed Internet services sold by cable companies in residential areas. In business districts, where cable modem service is not well-established, companies have flocked to DSL service as a low-cost alternative to expensive corporate-style connections using fiber optics.

Even with the steady--and sometimes overwhelming--demand for DSL service, NorthPoint, Covad Communications and Rhythms have been struggling to compete against telecommunications giants such as Pacific Bell and Verizon Communications, which have signed up DSL customers at a fast clip.

NorthPoint was particularly hard-hit because it had signed a merger deal with Verizon instead of raising additional funds on Wall Street. By the time the deal fell apart last year, investors had become wary of putting more money into DSL operators.

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