Verizon Takes over NorthPoint, ASP Services on Tap

FRAMINGHAM (08/08/2000) - Business customers can expect application services from NorthPoint Communications Group Inc. once its merger with Verizon Corp. is completed next year.

The proposed merger announced Tuesday and expected to close by mid-2001 will give the new NorthPoint access to about 12,000 Verizon IS and research staff to develop ASP services, says Larry Babbio, president of Verizon, who will become chairman of NorthPoint.

"We will be accelerating our efforts for product development [for businesses]," says Liz Fetter, president of NorthPoint. The two executives did not rule out buying ASP expertise and gave no details on what applications NorthPoint will host.

The pending merger calls for Verizon to spend US$800 million for NorthPoint - $350 million to buy 55 percent of the company's stock and $450 million for network improvements.

After the merger, NorthPoint will have DSL capabilities in more than 3,000 local switching offices in 163 metropolitan areas.

The deal is a blow to major DSL specialists Covad Communications and Rhythms NetConnections, says Claudia Bacco, a DSL analyst with TeleChoice, a telecom market research firm in Boston.

Covad started as a wholesaler but is trying to add retail DSL services to its line through the purchase of BlueStar Communications. NorthPoint is gaining a much more powerful retail force with the Verizon deal, Bacco says. Rhythms has been selling both retail and wholesale on its own.

Bacco also says that buying NorthPoint could answer one of the restrictions put on Verizon by the Federal Communications Commission as part of its approval of the Bell Atlantic/GTE merger that created Verizon. Verizon must set up a separate data subsidiary to offer advanced services, and NorthPoint seems to qualify, she says.

Historically Verizon and NorthPoint approached DSL from different angles, with Verizon trying to sell directly to consumers and NorthPoint selling to businesses and wholesaling to ISPs.

Today, NorthPoint claims 62,000 DSL lines in service, mostly for businesses, and Verizon claims 220,000, mostly residential. The companies project that by year-end, they will have 600,000 DSL lines in service.

Fetter says NorthPoint expected to push more into residential markets after it reached line-sharing agreements with local carriers. Line sharing enables one carrier to sell voice service on a phone line at the same time another carrier sells DSL service. That makes it possible for a DSL vendor to sell services without waiting for a new phone line to be installed.

NorthPoint already wholesaled DSL to Genuity, the former GTE Internet group that is now owned by Verizon. NorthPoint will also wholesale to UUNET, which is part of WorldCom, and AOL. And it will sell DSL services through RadioShack and Staples.

Babbio acknowledges that Verizon and NorthPoint have had troubles delivering DSL services as promised but says that is an industrywide problem that is getting better as provisioning and operating systems improve.

DSL vendors must lease local phone lines from the local carriers that own the lines, such as Verizon. NorthPoint's Fetter says becoming part of Verizon will not hurt the quality of service it gets from other regional Bell operating companies for provisioning those phone lines.

She notes that there may be some conflict with Pacific Bell, which is part of SBC Communications, in California. NorthPoint is helping out Pac Bell to provision DSL services, so with Verizon in the picture, the two RBOCs will be competing in that state. "We may have a little bit of an issue there," Fetter says.

Fetter says she expects that current NorthPoint employees will remain nonunionized after the merger. She says it is common after mergers for companies to have pockets of unionized and pockets of nonunionized staff.

Verizon is unionized and is currently in the third day of a strike by more than 80,000 workers.

Also Tuesday Verizon announced its plans to buy OnePoint Communications, a service provider specializing in wiring buildings to deliver high-speed voice and data services, for an undisclosed amount of cash by year-end.

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