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SHAKE-OUT CONTINUES
COVAD COMMUNICATIONS IS LATEST 'DSL' FIRM TO PULL OUT

Their capital dwindling, providers of fast "DSL" Internet lines are retreating from Western New York, making customers scramble for new connections.

Covad Communications told area customers to find another Internet link by March 1. The Santa Clara, Calif.-based company is pulling out of 260 locations amid a financial squeeze.

"They only gave us 15 days notice," said Bill Nieman, owner of Internet Services Group in Orchard Park. The Web hosting company had to "pull some strings" with a new provider to keep clients' Web sites from going dark.

Covad may restart its under-performing Buffalo operations "as soon as we have that financial luxury," spokesperson Suluh Lukoskie said. "In order for Covad to stay in business for the long haul, we have to conserve our cash flow."

Covad's exit follows on the heels of Rhythms NetConnections. The Denver-area company told customers it will pull the plug on its business-oriented DSL (digital subscriber line) service in 33 markets Feb. 28, including Buffalo. That move affected 1,000 customers nationwide, including residences and small businesses.

And in December, DSL provider Digital Broadband Communications unplugged Buffalo customers, caught in its own capital squeeze.

Often the winner is Verizon, the incumbent local phone company that is seeing upstart competitors bow out of the market.

The shake-out is a sharp reversal for the DSL providers, which were Wall Street superstars until last year. The low-cost technology provides speedy data links over existing phone wires.

The number of DSL subscribers will double this year to 3 million and grow to 13 million by 2005, according to industry analyst Gartner Group.

But while the technology attracts users at a heated pace, the companies selling it are heading into a shake-out, the Stamford, Conn. firm said.

"DSL remains an embryonic space," analyst Jay Pultz said in a recent report. He predicted leading "data local-exchange carriers" or DLECs will be absorbed by larger telecommunications companies. The problem, he said, is low prices and the necessity of splitting sales with local Internet service partners.

DSL provider Northpoint Communications filed for bankruptcy last month, after a sale to Verizon fell through.

Nieman said he'll miss Covad's reliable connection, costing $199 a month. To replace it he'll spend $600 a month on a larger T-1 line from Verizon, not including installation and new equipment.

"We were in the process of evolving to a T-1 anyway, but this kind of hit us," he said.

Until the new line can be connected, his business will have to house its Web servers at new provider RoncoNet in Tonawanda, causing programming headaches.

RoncoNet, an installation agent for Verizon, is getting calls from disconnected DSL customers, director Hal Kingsley said.

Unlike smaller competitors, Verizon has a raft of services to sell beyond a simple connection, generating higher revenues per line. "I think you're going to see more of this to come," he said of the shake-out.

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