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Making waves in the data world

Nowhere has the impact of the Telecommunications Act of 1996 been seen more than with the success of competitive local exchange carriers.

Zero to millions in just three years.

That's revenue, not the expected acceleration speed, of new phone companies that are driving competition in the data services market as a result of telco deregulation.

Nowhere else has the impact of the Telecommunications Act of 1996 been felt more than with the early success of a handful of new competitive local exchange carriers (CLECs).

And they aren't even really phone companies--at least not yet.

Making waves in the data worldCovad Communications Group, NorthPoint Communications, and Rhythms NetConnections prefer to call themselves "data" or "packet" CLECs. The companies are focused on providing packet-switched, Internet Protocol-based data services for business customers, rather than local consumer voice service.

This new breed of phone company started by signing so-called co-location agreements with the Baby Bells that allow them to house equipment in the companies' central office facilities. They then lease "local loops," or copper wires, which connect to consumers' homes and offices.

The CLECs are aggressively marketing a service known as digital subscriber lines (DSL) to Internet service providers (ISPs) and corporate customers.

DSL allows high-speed Internet access over standard copper telephone wires and is the chief competitor to cable modems for broadband connections to the home and small office. Even larger businesses are considering DSL as an alternative to leased line connections, such as T1s and ISDN lines. DSL, which comes in many different versions, offers comparable download speeds, but at a far lower cost.

That has allowed the data CLECs to beat many of the Bells to the punch in DSL service offerings. With the exception of US West, the regional phone giants have--until just recently--been slow to rollout their own DSL services, fearful of cutting into their lucrative T1 sales, according to critics. Others say the regional phone companies are simply waiting for DSL interoperability standards to be ratified this summer.

But don't call these national data CLECs just DSL companies. Many of them have other plans up their sleeves, including offering voice-over-IP (VoIP) applications and other advanced digital services.

Although analysts say Covad, NorthPoint, and Rhythms are leading the pack, other CLECs have made some headway in the data services market. Dakota Services, for example, has large DSL deployments in Chicago, Milwaukee, and Madison, Wisconsin.

Here's a look at highlights from the three largest national data CLECs since the Telecommunications Act was signed in February 1996.

Climbing the CLEC ladder
Oct 1996 Covad Communications is founded by Chuck McMinn, a former Intel employee. Initial funding for the company came from Intel, Crosspoint Ventures, and Warburg Pincus.
June 1997
Michael Malaga leaves MFS/WorldCom to form NorthPoint Communications with funding from Benchmark Capital, Greylock Capital, and Accel Partners.
July 1997 Former US West executive Catherine Hapka forms Rhythms NetConnections with more than $20 million in financial backing from venture capital firms such as Kleiner Perkins Caufield & Byers, Enterprise Partners, The Sprout Group, and Brentwood Venture.
Dec 1997 Covad's first commercial rollout of DSL services launches in the San Francisco/Silicon Valley region.
Mar 1998 NorthPoint offers its first service in the San Francisco Bay area.
Apr 1998 Rhythms' first DSL service is available in San Diego. The company also gets $150 million in private financing.
June 1998 NorthPoint offers DSL service in Los Angeles. Former FCC chairman Reed Hundt joins the NorthPoint Board of Directors.

NorthPoint signs a deal with @Work, the business division of @Home.

July 1998 NorthPoint expands services to Maryland, Ohio, Oregon, Missouri, and Boston.
Aug 1998 Covad announces DSL service roll-out in Los Angeles, New York, and Boston, and targets an additional 22 markets by the end of 1999.
Sept 1998 Covad files with the Securities and Exchange Commission for an initial public offering of 7.8 million shares, one of the first CLECs to go public.
Oct 1998 NorthPoint expands to seven major metropolitan markets including Dallas, New York, Chicago, San Diego, Washington, Detroit, and Houston.
Dec 1998 Rhythms serves 11 markets including San Diego, San Francisco, Los Angeles, Orange County, Sacramento, Chicago, Boston, New York, Philadelphia, Oakland, California, and San Jose, California.

NorthPoint announces it will offer DSL in 15 new markets by the third quarter of 1999. The company also gets an equity investment from Intel.

Jan 1999 Qwest Communications International invests $15 million in Covad.

Covad shares surge more than 150 percent from its $18 per share IPO price.

MCI WorldCom makes $30 million minority equity investment in Rhythms.

Feb 1999 Covad expands DSL service into Seattle/Puget Sound region.

NorthPoint receives a $5.6 million investment from Verio, a business-focused ISP. Verio will offer NorthPoint DSL in eight markets.

Rhythms files for an initial public offering expected to raise $165 million.

Go to: Bell Atlantic leads the pack 

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