Retail Versus Wholesale: It Matters to AT&T

One of the Internet’s most significant accomplishments in the world of product and service distribution has been to blur the lines between wholesale and retail. For everyone, it seems, except AT&T.

In a world in which manufacturers increasingly compete with their distributors by selling direct, AT&T apparently feels compelled to do things the old-fashioned way, and in dramatic fashion.

AT&T’s rigid approach to distribution became a major news event at the end of March, when it became entangled in the bankruptcy and shutdown of NorthPoint Communications Inc., a major supplier of high-speed DSL lines. In a nutshell, here’s what happened.

Do Customers Matter?

NorthPoint went bankrupt early this year after a proposed acquisition of the company by Verizon came apart last year. By late March, it said it was out of money. As part of the bankruptcy proceedings, it sold network equipment and other technology to AT&T. It couldn’t sell its customer base, however, and though AT&T is in the DSL business and aggressively seeking out new customers, AT&T declined to acquire NorthPoint customers. About a week after the AT&T transaction was announced, NorthPoint abruptly shut off service to all of its approximately 100,000 customers — many of them small businesses — leaving them without an Internet connection. In this day and age, that is akin to shutting off a company’s electricity or telephone service — you may as well shut the doors.

At this point, AT&T, new owner of the NorthPoint network equipment, might have played hero and attempted to come to the rescue of NorthPoint customers. However, AT&T refused to keep the NorthPoint network running. That left 100,000 customers scrambling for slow dial-up service to maintain a basic Internet connection and trying to reconnect DSL service — a one- to two-month proposition.

What was AT&T thinking?

Well, on its Web site, AT&T takes a crack at explaining the chain of events, giving its own rationale. It’s kind of understandable, if you like interpreting corporate-speak.

AT&T to the Rescue

“During the past few days, end users of NorthPoint Communications have contacted us for help in managing their transition to a new DSL provider. AT&T understands how difficult this situation is…”

As the Church Lady used to say on “Saturday Night Live”: “Isn’t that special?!”

AT&T provides a few links to sites listing names of DSL providers. Then it provides this explanation: “NorthPoint filed for bankruptcy protection on January 16, 2001, which has unfortunately resulted in NorthPoint’s end users losing their DSL connections. NorthPoint was primarily a wholesale provider which sold its services to ISPs — not end users… On March 22, 2001, AT&T agreed to acquire certain network assets and technology components from NorthPoint Communications… AT&T did not acquire NorthPoint’s wholesale ISP customer base asset — nor the obligation to manage NorthPoint’s network as an ongoing concern. AT&T is not a wholesale provider. We deliver our existing retail DSL service for businesses through relationships with our suppliers Covad and Rhythms. AT&T’s DSL strategy is to both build its own facilities-based service — for which the NorthPoint assets will be used in the coming months — as well as buy services from third-party providers…”

An AT&T spokesperson emphasizes that the operative terms are “wholesale” and “retail.” “It didn’t make sense for us to acquire a wholesale asset when our whole thrust is retail. Wholesale is not our model.”

AT&T’s explanation may make sense to the army of middle managers who devise those spiffy strategic plans that likely project a sharply rising growth curve for the company’s DSL service. But the 100,000 customers who lost DSL service when NorthPoint pulled the plug don’t really care about whether they are buying their DSL service from a wholesaler or a retailer. They just want their Internet connection kept open. And if AT&T had been creative about its approach to this transaction, it almost certainly could have captured a significant number of those 100,000 customers, at very low cost.

But when you’re losing $1.7 billion, as AT&T did last year, you presumably try and stay focused on the big picture. You don’t want to get distracted by the prospect of a mere 100,000 new customers.

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