Baby Bells hoping fiber conquers cable
[I came across this on the Gilder board. With thanks to rlx.]
In seeking cheaper optic lines, team aims to supply superfast Internet, video
05/29/2003
By VIKAS BAJAJ / The Dallas Morning News
Unleashing a new offensive against their cable company rivals, the nation's
three biggest local-phone companies plan to jointly solicit bids for equipment that can provide video and superfast Internet connections to consumers.
The move signals that the companies are preparing to significantly increase investments after a devastating, 2 ½-year slowdown during which the telecommunications industry slashed hundreds of thousands of jobs. It also indicates that the phone companies are once again considering taking cable companies head-on with a video service.
By acting together, SBC Communications Inc., Verizon Communications Inc. and BellSouth Corp. hope to bring their substantial purchasing power to bear on fiber-optic wiring and equipment prices that until now were considered too high for residential use, industry officials say. The three companies – descendants of Ma Bell – control almost three-quarters of the nation's local-phone lines.
The consortium was expected to make an announcement as early as Thursday.
SBC, Verizon and BellSouth declined to comment Wednesday, but the move was confirmed by several industry officials and a document provided to the trio's suppliers.
Most consumers will have to wait a little while to enjoy the technology. The companies are not expected to begin constructing networks until at least next year, and their initial targets will probably be new subdivisions.
Qwest Communications International Inc., the only Baby Bell that's not part of the consortium, said it was invited to join the group but chose not to because it doesn't believe the technology will provide a significant financial return today.
"We just determined that it didn't meet our own success threshold," said Sylvia McLachlan, a Qwest spokeswoman in Denver.
Industry officials familiar with the situation said the three Bells would formally solicit bids from vendors such as Alcatel and Nortel Networks Corp. next month. They will follow an approach they set in 1996 for digital subscriber line equipment, the popular high-speed Internet technology that they ended up spending billions of dollars on.
"The fact that they are teaming up indicates that they can't get to this on their own," said Danny Briere, chief executive of TeleChoice, a Tulsa consulting firm. "To get to the price they want, they have to team up like a Sam's warehouse. While there are precedents for this, it doesn't happen often."
Mr. Briere and other officials familiar with the matter said they remain cautious about how quickly and widely the Bell companies will deploy the technology. In the past, the companies have slowed spending on technologies such as DSL after promising to make it widely available.
"We are incredibly skeptical about it and wary of it but at the same time bubbling with excitement," said Brendon Mills, chief executive of General Bandwidth Inc. of Austin, an equipment maker. "You hear bad news for so long that you get skeptical, but this looks like the real deal."
Officials say the Baby Bells feel empowered to act now because the Federal Communications Commission said in February that they won't have to share new fiber-optic networks with rivals, as they must their current networks. A final commission order on the matter could come by Friday.
In late 2001, San Antonio-based SBC significantly slowed down a $6 billion investment to upgrade 80 percent of its lines for DSL, citing burdensome regulations. Today, 66 percent of SBC's customers can get DSL.
The FCC's February decision gave the Bells most of the relief they were seeking. The local-phone giants can now use fiber networks not only to compete with cable companies, which dominate the broadband Internet business, but also to beat back challenges from AT&T Corp. and MCI, which lease Bell phone networks.
"They have areas where there is a lot of competition," Mr. Briere said. "To forestall that competition, all they have to do is convert them to fiber."
The new networks have so much capacity that they can carry video streams, phone calls and Internet traffic simultaneously.
One indication comes from a survey the three Bells issued to their vendors in April, a copy of which was provided to The Dallas Morning News by an industry official. The companies queried manufacturers about the cost of systems that could serve between 300,000 and 1 million users.
Mr. Mills and others said they expect the Bells to install fiber networks first in new subdivisions, where they won't have to dig up yards and replace wires already on utility poles. SBC is already doing so in a new development in San Francisco with Alcatel equipment.
The systems could also find a place in dense cities and older neighborhoods where existing phone wiring is deteriorating.
Ultimately the decision will come down to the cost of hair-thin fiber wires, laser-equipped modems, Internet routers and other devices.
Today, Mr. Briere said, fiber-optic systems for residential use can cost between $1,500 and $3,000 per home. The Bells want the price to be as low as $800 to $1,000 a home.
at winning the business.
Recent history shows that phone companies can get dramatically lower prices when they order in bulk.
During the mid-1990s, four Bells – Southwestern Bell, Ameritech, Pacific Bell and BellSouth – acting together drove DSL costs down to around $300 a line from $800 to $900, Mr. Briere said.
While that seems like a significant discount, it helped the French-based Alcatel – with U.S. headquarters in Plano – to dominate the market for DSL equipment.
But when it first won the contract, executives were worried that the market wouldn't take off, said David Orr, who headed Alcatel's U.S. operations in the 1990s.
"If anything, Alcatel was worried that the [Baby Bells] wouldn't live up to those commitments relative to the volumes that were guaranteed," said Mr. Orr, now chief executive of Metro-Optix Inc. of Allen, an equipment maker. "And there were questions about how fast they would ramp up."
But the market did eventually take off. The Bells were driven to invest by the 1996 federal deregulation of telecommunications and the success that cable companies and other Bell rivals were having with broadband, said Jay Fausch, Alcatel's senior director of marketing.
"There were a lot of things that came together in the late 1990s," he said.
Alcatel will probably be a front-runner in the Bells' latest initiative, Mr. Briere said. But a number of smaller companies also have a shot. |
