Another DSL Domino Falls

A week after filing for bankruptcy protection, Rhythms NetConnections tells customers they have 31 days to find a new provider

One week after filing for Chapter 11 bankruptcy protection, Rhythms NetConnections Inc., one of the biggest players in high-speed Internet access, says it's pulling the plug on all of its customers in 31 days and laying off 700 workers, about 75% of its staff.

After filing for court protection on Aug. 2, the company said it planned to continue operating its DSL (digital subscriber line) service "until such time as it reasonably determines that it is unlikely to attract an acceptable bid for the company as a going concern." An announcement on the company Web site said at that point "the company plans to provide customers with at least 31 days written notice prior to any network service termination." Those notices were sent just eight days later.

Englewood (Colo.)-based Rhythms, which provided broadband service over ordinary phone lines, is just the latest casualty in the battered telecommunications market (see BW Online, 8/9/01, "When DSL Stands for Darn Shaky Link").


  Rhythms said it would help customers -- the company says it has 83,000 lines in service -- shift to a new provider. But that's perhaps easier said than done: Service from phone companies is often unreliable or impossible to get, and many of the biggest independent DSL providers have declared bankruptcy or shut down in the past few months. Among the most vexing may be NorthPoint Communications, which left customers stranded with practically no notice and the industry with a tarnished image.

Covad Communications Group immediately offered to step into the breach by offering rebates to Rhythms customers who switch to its service. The only problem is Covad announced plans to file for Chapter 11 bankruptcy just a few days earlier, and its auditors have previously questioned whether the company can survive.

Abhi Ingle, Covad's marketing vice-president, agrees that Rhythms' customers might wonder whether they'll ever see the rebate and whether their service would be secure. But Ingle tells BusinessWeek Online that they should trust Covad because the bankruptcy filing leaves the company with more than enough cash to cover the rebates and doesn't affect operational decisions.

What if Covad ultimately doesn't survive? Ingle was adamant: "If that worst-case scenario were to happen, we will provide more than adequate notice for people to switch over, and we will not let a Northpoint-type of situation occur.... It will not happen with us."

By Rick Green in New York

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