This is a link Frank provided some time back re: Line Sharing
eoffering.com
October 21, 1999
LINE SHARING—
THE ULTIMATE KEY TO
UNLEASH THE POTENTIAL
OF DSL PROVIDERS?
The breakneck pace of development and adoption of the Internet in the last few years has created
tremendous demand for high-speed access to the Internet. New technologies and service providers
have emerged to break what is commonly referred to as the “local loop bottleneck.” In other words,
where the long distance networks can handle tremendous amounts of traffic at extremely high
speeds, but the existing local connections to access these “backbones” can be painfully slow.
Digital Subscriber Line (DSL) technology has emerged to serve the sweet spot of broadband, or
high-speed, access for small- and medium-sized businesses. Covad Communications (COVD
$40-1/4), NorthPoint Communications (NPNT $21-5/8), and Rhythms NetConnections
(RTHM $29-7/8) were the first three national data Competitive Local Exchange Carriers (CLECs)
founded to address the DSL opportunity. All three have gone public in 1999 and together have a
combined market capitalization of $8.1 billion.
Many investors are clearly betting on this new breed of carrier to capitalize on the tremendous
demand that small- and medium-sized businesses have for broadband access. The new national data
CLECs have been extremely aggressive in building out their central office (C.O.) footprint to serve
large populations. The C.O. footprint refers to the telephone companies' central office locations
where DSL providers have co-located their equipment in order to provide services.
However, data CLECs have not been able to be as aggressive as they would like. A major gating factor for the
independent DSL providers is provisioning: the ability and the timeframe to provide customers with a line for
high-speed data service. Line sharing would, in our opinion, significantly improve the provisioning issue. Line
sharing, as the name suggests, is the ability to physically share one telephone line for more than one service—such
as data and voice—from more than one service provider—such as the incumbent and the CLEC.
Under current regulation, data CLECs, such as NorthPoint, cannot use the copper-twisted pair that the incumbent
local telephone company uses to deliver voice service. In order to deliver high-speed data, the data CLECs must
get a separate copper-twisted pair qualified and provisioned by the incumbent telco, such as SBC
Communications (SBC $46-7/16) or Bell Atlantic (BEL $63-13/16). The qualification and provisioning process
significantly slows down CLECs' ability to serve the pent-up demand for their high-speed data services.
According to an estimate by Covad, once the incumbent qualifies and provisions a line for Covad, it in turn takes
Covad only two days to provision data service on the loop. Legally as well as contractually, the incumbent provider
must supply Covad with the qualified loop in 14 days, but Covad currently waits an average of 30 days for a
regional Bell company to qualify and provision a line. Consequently, customers not only are forced to wait, but
also, by having a separate line provisioned for data, must pay the expense of the additional line.
The ability to share the same line for voice and data would eliminate the need for—and thus the delay and expense
of—a second line. The time for provisioning a DSL data service could be cut from 30+ days to 2–3 days. This
significantly enhances the speed of service delivery, and could enable data CLECs to capture more business
customers in a much shorter time frame. (Which could explain why the incumbent carriers drag their feet on both
provisioning as well as line sharing.)
The data CLECs are pressing hard on the regulatory front for line sharing, but the battle is not an easy one. The
struggle is taking place at both the federal and local level. On the local level, a recent ruling on October 8 th by
Minnesota Public Utilities Commissions (MPUC) could represent a landmark victory for the CLECs. The MPUC
ordered the incumbent Bell company, U S WEST (USW $59-9/16), and CLECs to establish “terms and
conditions” for line sharing, and to test CLEC equipment on U S WEST's voice network in 45 days.
On the federal level, the FCC is expected to rule on the issue of line sharing as early as next month. CLECs believe
that line sharing eventually will happen—it's just a matter of when. Incumbent telcos argue that line sharing is
technically too difficult. But if incumbents can provide their own separate data and voice services on one line
(which they do), why can't they accommodate separate data and voice services from separate vendors? We believe
that both technical and customer service issues are resolvable, however, it will take the courts to resolve the issue
fully.
Even in the best case scenario that the FCC rules in CLECs' favor in November, data CLECs will probably not see
the real benefits of line sharing until the second half of next year. Why? Because the regional Bell companies can
be expected to drag their feet as long as possible and whine about the myriad difficulties of line sharing. But once
line sharing does happen, which we believe it will, there will be a land grab as data CLECs accelerate their DSL
line installments to lock-in business customers. We believe that the sooner the line sharing issue gets resolved, the
faster the adoption of DSL services will occur. The year 2000 may be a critical year for the resolution of line
sharing—as well as a take-off in DSL deployment by providers such as Covad, NorthPoint, and Rhythms. |
