SAN JOSE, Calif. -- Not long ago, the prophets of our digital future were touting DSL as one of the hottest tickets to a broadband revolution that would utterly transform telecommunications.

Homes and businesses would have hassle-free, always-on, affordable and speedyInternet access. And DSL was not just for Web surfing: Interactive television, telephones and kitchen appliances -- all connected -- were supposedly just around the corner.

Digital Subscriber Line technology, which runs over regular copper phone wire, was also supposed to be a powerful vehicle for ending regional telephone companies' domination over local service.

But for independent DSL providers, the reality has fallen far short of the promise. Wall Street lost confidence. Plans to create nationwide networks were scaled back. Many independents are going broke.

Emerging dominant now in the DSL market are the century-old phone companies against whom complaints had piled up for shoddy service and long installation waits.

The independents accuse the regional Bells of anticompetitive behavior, of locking them out of the neighborhood switching offices that link phone lines, the telephone network and the Internet -- of violating the spirit of the 1996 Telecommunications Act, which promised more choice and better service.

"We're on the precipice of disaster, and it's not clear our industry is going to survive," says John Windhausen, president of the Association for Local Telecommunications Services, a trade group for competitive carriers that offer voice and data lines including DSL.

Victims in the DSL drama include bankrupt NorthPoint Communications, which last month sold most of its assets -- but not its customers -- to AT&T for $135 million; Rhythms NetConnections, whose chief executive quit and whose auditors question its viability; Covad Communications, which laid off 800 people and scaled back.

Now, tens of thousands of customers are scrambling for alternative providers or returning to slow dial-up modems.

"It's really tough for me to be giving this up," says John Margarone, a Buffalo, N.Y., computer consultant about to lose his DSL at his home where he invested $10,000 in equipment. "This aspect of my business is dead right now."

The crisis of the upstart DSL providers would seem paradoxical. Demand has never been stronger -- and the major phone companies are now reporting fewer installation troubles.

Last year, U.S. subscribers of DSL shot up by 500,000 to 2.4 million, according to TeleChoice, a research firm. That number is expected to swell to 5.7 million this year but still fall behind the numbers posted by the cable companies' competing services.

Most new DSL business is expected to fall to regional Bell companies, which claim 76 percent of all subscribers.

For residential customers, cable or DSL service costs as little as $39.95 a month. That price is difficult for independents to match after they pay the phone company to use its lines.

Under the Telecommunications Act, leased-line charges are negotiated under a formula set by the Federal Communications Commission. If no deal can be reached, state regulators step in.

In the end, charges vary widely -- but the independents say the regional Bells game the system to their advantage. The phone companies say fees should be higher.

Monthly leases for single lines that share both voice and data can cost independent providers as much as $15. New lines cost them as much as $30 each. Plus, the phone companies charge for leasing space, line testing, security and air conditioning.

"It turns out it was a faulty business model," said Michael Goodman, a Yankee Group analyst. "Was it someone else's fault that they built their business model at a competitive disadvantage?"

The DSL buildup began in earnest in 1999, as the stock markets boomed and plentiful venture capital emboldened DSL companies to embark on nationwide rollouts.

"They were giving away close to a thousand dollars to acquire that customer," said Joe Plotkin of the U.S. ISP Alliance.

Last year, the cash spigot closed as Wall Street stopped prizing growth over profits. ISPs stopped paying their bills just as their DSL partners were deep in the capital-intensive network deployments.

The Bells leveraged what Epoch Partners analyst Mark Langner called their "huge natural advantage," heavily advertising their own DSL service.

This story appeared in The Daily Herald on page C1.