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THE DAY AHEAD: DSL.net has nice name, no revenue

Here's a multiple choice IPO quiz: Given DSL.net (Nasdaq: DSLN) had to lower its initial public offering price three times it must mean that:

a.) DSL.net is facing an IPO market threatened by a glut of issues.

b.) DSL.net is in the development stage and investors are justifiably wary.

c.) DSL.net has nothing more going for it than a cool name.

d.) All of the above.

If you picked answer "d," you win an all expense paid vacation to ZDNet. Sorry about the prize, but we didn't have a lot of time.

Yes, broadband plays are among the best performing IPOs this year, but to lump DSL.net in with the high-flying infrastructure companies would be a mistake. See DSL.net doesn't make anything -- it is a DSL service provider to small- and medium-sized businesses in "second and third tier" cities. It competes with any company offering digital subscriber line access.

Repeat after me: I will read the prospectus after class.

Fortunately, someone is reading the prospectus. But most of them are on the institutional side and weren't interested in DSL.net's previous terms. Consider yourself warned.

DSL.net priced at $7.50 and will trade later today. On Tuesday, DSL.net cut the terms of its initial public offering to 7.2 million shares with a price range between $7.50-$8.50. The company cut its offering from 9.6 million shares priced between $8 and $10. In August, the price range was $10 to $12. Deutsche Banc Alex. Brown is the lead underwriter with an assist from Donaldson, Lufkin & Jenrette and Lehman Brothers.

There's a good reason DSL.net is pricing at the low end of a three-times revised price range.

"This still sounds like an ISP to me," said Francis Gaskins, editor of the Gaskins IPO Desktop. "These guys have nothing proprietary and by any quantitative measure it looks bad."

The numbers that have Gaskins so critical are pretty straightforward. For the six months ending June 30, DSL.net had revenue of $184,173 and a loss of $6.5 million. For 1998 (March inception to Dec. 31), DSL.net had sales of $3,489 and a loss of $2.7 million.

For all that hard work, DSL.net wants to raise a lot of money and expand its network to reach more than 100 cities by the end of the year. The goal is to "be the first DSL-based service provider in select second and third tier cities throughout the United States."

Woopie.

Here are a few other tidbits to consider about DSL.net:

1. DSL.net is selling DSL service directly. Other DSL service providers are reselling DSL. There's a reason for that -- it's expensive. The company may not have the clout to negotiate good interconnection rates from the telecoms. And DSL service prices are falling.

2. Competition. DSL.net may be focused on smaller cities, but it will still run into the likes of SBC (NYSE: SBC), Bell Atlantic (NYSE: BEL) and BellSouth (NYSE: BLS).

And the list of competitors is long: Covad Communications (Nasdaq: CVAD), Network Access Solutions (Nasdaq: NSAC), NorthPoint Communications (Nasdaq: NPNT), Rhythms NetConnections (Nasdaq: RTHM), America Online (NYSE: AOL) , Concentric Network (Nasdaq: CNCX), Flashcom, AT&T (NYSE: T) and MCI WorldCom (Nasdaq: WCOM). Let's face it folks DSL is not an original idea.

3. The big DSL bet. Imagine if a company a while back called itself Betamax Inc. DSL will be one of the broadband winners, but it sure isn't the whole ballgame. There's wireless and satellite-based data service providers and cable access companies such as Excite@Home.

4. DSL.net is going into debt -- lots of it. "We may incur significant amounts of debt in the future to implement our business plan," said the company in filings. "We may not be able to repay our current debt or any future debt."

So why is the undeveloped DSL.net going public? Gaskins has a theory. "The VC (venture capitalists) want to cash out," he said.

DLJDirect has clicks, wants bricks

DLJDirect (NYSE: DIR) made its name as an online broker, but acknowledges that bricks-and-mortar has its place. Speaking at an Internet World forum Tuesday Glenn H. Tongue, president of the online broker, said DLJDirect wasn't averse to having real-world branches.

"Branches are a good asset and good advertising," he said. "They provide a level of trust."

Tongue said DLJDirect would consider micro-branches for customer acquisition. What works for Schwab can work for DLJDirect. What's next E*Trade (Nasdaq: EGRP) branches in malls?