The future is now, but is anyone really interested in paying for it? The Phoenix rollout of Very high bit-rate Digital Subscriber Line (VDSL) was supposed to boost not only the speed of users' Internet connections but also the fortunes of Rohnert Park, Calif.-based Next Level Communications Inc. [Nasdaq:NXTV].
Next Level - originally part of General Instrument Corp., which was acquired by Motorola Inc. [NYSE:MOT] in January - started down the VDSL road with a major contract from US West Inc. But US West has been absorbed by Denver-based Qwest Communications International Inc. [NYSE:Q], and there is some concern that the company will focus more on the business Internet user, slowing VDSL growth.
"Following successful market acceptance testing, Qwest now finds itself in the second phase of its VDSL deployment plan," says Steven D. Levy, an analyst at New York-based Lehman Brothers Holdings Inc. "This phase requires that Next Level's VDSL system meet a high return-on-invested-capital hurdle rate." But until the second phase is completed at US West, Next Level's largest customer, investors are taking a wait-and-see attitude.
Qwest Chairman and CEO Joe Nachio earlier this month said he plans to double the company's wireless and DSL customer base, adding that "all commitments to [VDSL] customers and partners will be satisfied."
Hardly a ringing endorsement from a company that accounted for 67% of Next Level's second-quarter revenue, though Next Level is watching this development. "Qwest/US West has not informed us of its plans for VDSL," says Peter Keeler, CEO and chairman of Next Level. "Any significant decline in revenues from US West would have a material adverse effect on our operating results."
Next Level also supplies field-proven VDSL video to a customer base that includes Verizon Communications Inc. [NYSE:VZ], Bell Canada International Inc. [Nasdaq:BCICF] and Cablevision Systems Corp. [NYSE:CVC], as well as a variety of local calling carriers. Overseas, France Telecom SA [NYSE:FTE] plans to start field trials with the company's system in October. And other international carriers have signed on as well.