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1) This is a great deal for Verizon. NorthPoint covers as much of the US as Media One, the cable company AT&T paid $60B or so for. It delivers the last mile around the world, not just in the US. NorthPoint is on track to cover 40% of the US homes/offices by the end of the year.
2) This is a voice deal, not just data. Verizon announced last week that it is moving this year into "voice over DSL", which enables up to 16 lines of telephony over a single copper pair. It's an easy upgrade to NorthPoint's equipment, with a national footprint, and NorthPoint was going there already. Verizon is rolling Dallas (old GTE territory, Lucent/CopperCom equipment, but works fine with the Alcatel gear in Bell-Atlantic and the Copper Mountain and Cisco in NorthPoint) this year, expanding next.
3) This is an international deal. Verizon, like SBC, Qwest, DT, Telfonica and others, looks to become a world player. VersaPoint (50-50 NorthPoint Versatel deal) is an early mover in Europe, with colos throughout Germany and Holland in process, and in position for England and France. Bell-Atlantic has the BBN/Genuity Bell-Atlanticckbone, a primary internet connection, and a $2B deal with Metromedia Fiber around the world. Bell-Atlantic is already in Greece, Czech Republic, Telus in Canada, and Latin America.
4) This is a video deal. Verizon announced two weeks ago a "video-on-demand" deal with Enron and Blockbuster, but when I got the technical details I discovered they are testing at 3 meg as well - fine for streaming MPEG2 live video, and in use at Kingston in England over ADSL gear. Video reporting below.
5) This means more national competition for voice - data - wireless - video bundles. Most of the telcos, Bell-Atlanticcked by research, believe in selling customers attractive bundles, which will retain the customer for all service. After all, who would want to change all their phone numbers and email addresses? They expect a big reduction in churn, a killer advantage compared to the current long distance and wireless market. Unproven, but likely.
6) The venture capitalists control the bulk of the NorthPoint stock, and obviously decided to hedge their bets, after losing 60% of the peak value. They made a deal for Bell-Atlanticcking, cash, and customers - but retaining 45% to still have an upside. NorthPoint was low on cash as of the earlier part of next year, and the VCs wanted to cash out instead of raising more money at the current high rates. The street has been putting pressure on all the CLECs because of the cost of capital to cover ongoing losses. Sensible concern, but of course Internet stock prices were never sensible.
7) Price is cheap as this from last week's issue suggests. From last DSL Prime, Dave Burstein editor: "Is Goldman Sachs shopping NorthPoint for a takeover?" was asked this week. We don't know if this one is true, as rumors about buyouts of Rhythms, Covad, & NorthPoint swirl constantly. But we'd be amazed if some offers don't come soon, because each of these companies has a network that reaches almost a third of US homes and businesses. Forget the $50B bid for VoiceStream - even the $5B NTT DoCoMo is spending for Verio is several times what it would cost to buy either Rhythms or NorthPoint. We led last week a negative Wall Street report on the DLECs, which saw increased competition and higher costs of borrowed funds as great burdens. But we work every day with these companies, and believe the managements are strong enough to overcome the obstacles they face.
8) Liz Fetter, Pres of NorthPoint, is out of US West and is one of the sharpest in the business. Mike Malaga had the vision and drive to build NorthPoint. Excellent management - good reason to make the deal. Bell-Atlantic has some very sharp people as well, less publicly visible. But Jeff Waldhuter is a pioneer in DSL (and ISDN before that), and Amy Harmon, Pete Castleton, and Marianne Berry are first-rate marketing people and a pleasure to work with.
9) NorthPoint's operations are clean and getting efficient. GTE was doing a good job, but Bell-Atlantic was struggling.
10) Financially, partial buyout resulted in cheaper price, squeezing those who bought on the rumor. $2B is insignificant on the scale of a Verizon, and look for similar offers for Rhythms (half the price, but similar network build) and possibly Covad in the near future. But some buyers have been dissuaded by the predictable losses at any of the companies - that's why MCI hasn't made a bid for Rhythms, for example. Net decrease to earnings 2-4 years is predictable, although a smart accountant may be able to bury it.
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