News Analysis: DSL is not dead, just 'parked'
By Ian Scales
01 April 2001
DSL has been beaten to a virtual standstill over the last year, but the best could be yet to come. At least one specialist is opting to aggregate the resources of European DSL providers to share the capital burden.
Politicians are good at finding words for difficult concepts. They can talk, for instance, about 'parking' a peace process while difficulties are resolved. We know instinctively what they mean (and are trying not to mean) by this.
In the telecoms business, such nuances are rarer. We run an all-or-nothing sort of a ship. Things are either a booming success or an obvious disppointment.
A technology or approach might be defined as the best thing since sliced bread one day and 'toast' the next, when all that's happened is that it hasn't lived up to the most optimistic expectations.
Unbundled DSL is in danger of getting a 'toast' label. Late last year local loop unbundling, and DSL by extension, suffered a series of body blows in Europe. Despite surprisingly resolute action by the European Commission last year to hurry up the local loop unbundling process, incumbent carriers remained obstructive, and some regulators pulled their punches.
But the real coup de grace for unbundling - or in fact any significant infrastructure investment - in 2001 was the change in sentiment by the stock and debt markets.
Unbundling may be difficult, but when the capital markets shut the door, that's it - at least for the time being.
"A lot of us spent a lot of money (on the unbundling process), said Steve Maine, chief executive of Kingston Communications (Hull, England). "In many ways that was the most damning part of this whole saga, because it wasted our time and took our focus.
"The (unbundled exchange) allocation process said: 'We'll look at the least popular exchanges first'. That produced a roster of exchanges in the residential market that was disastrous," he said.
That balloting process meant players had to look forward to an incoherent pattern of exchange allocations which made it impossible to plan an economically viable back-haul and POP network. As a result, Kingston, like a host of other players, including Telewest Communications plc (Woking, England) and KPN Qwest NV (Hoofddorp, the Netherlands), has parked its plans - in Kingston's case for residential deployment. Maine claims the company still intends to go ahead when the conditions are better, and is proceeding with DSL deployments in support of business customers.
For Jack McMaster, chief executive at KPN Qwest, one of the most ambitious pan-European network builders and initially a big supporter of unbundling, the whole idea was, with hindsight, a mistake. "I admit it, I got it wrong," he said.
McMaster was one of the first big players to publicly pull his company out because of incumbent carrier obstruction and financial reasons. Now he's going to put money into developing IP virtual private network services instead, he said.
Cable company Telewest also decided to pull out when the financial climate changed. "Telewest has always been more balanced than many in terms of cash flow, and we haven't changed our strategy to any great extent," claimed Charles Burdick, group finance director at Telewest. "What happens in practice is that you sit down every year and work out how your capital allocation is best going to work, given the state of the market and other factors. As part of that process, certain projects get delayed and certain projects get stopped. The decision not to go into DSL was a good example. We first regarded ourselves as a potential infrastructure player. Now we think of ourselves as a partner," he said.
With this background, while it's going to be difficult to kick-start enthusiasm, some still believe the best is yet to come.
Richard Greco, who heads up wholesale DSL venture Bulldog Communications (London), is currently drumming up support for his business model from carriers and ISPs which originally participated in the unbundling negotiation process with BT, but subsequently pulled out when the going got tough.
Having already invested substantial sums in research, trials, marketing and product development, not to mention having "warmed up" customers to the idea that low-cost broadband access was on the way, Greco is counting on a group of potential partners keen to follow through all this effort with some sort of investment, but reluctant to go it alone with their own costly unbundling programmes in a time of market uncertainty.
"The key is to aggregate the effort, then the economics look totally different," claimed Greco, who pointed out that Bulldog "partners" will be able to share DSL access multiplexers and backhaul. "The equipment has come on now, so you can deploy different sorts of DSL from the same chassis (in the incumbent local exchange)."
But it's not surprising that Greco is finding it a hard slog convincing the money men in the wake of the crash and the difficulties experienced in the United States over unbundling. New carrier complaints on obstructive behaviour by incumbents, even if justified, also haven't helped the cause.
"The market in the U.S. is fundamentally different than in Europe," said Greco. "Distances between (local exchanges) and residences were longer (making DSL more difficult to deploy). In Europe, Cable TV - (which in the U.S. delivers service via cable modem) - has only penetrated 25% at most, while leased lines are priced much higher. The people in the U.S. had first mover disadvantage and that exposed the fact that (operational expenses) can be a real problem."
According to Greco and other observers, the U.S. wholesale DSL providers such as Covad Communications (Santa Clara, California) and NorthPoint Communications Group Inc. (San Francisco) were spending much more money than envisaged on truck rolls to troubleshoot DSL connections.
In Europe, on the other hand, Greco claims that the technology has now matured to the point where up to 70% of the potential customers can self-install the equipment. And the equipment itself has become much more flexible, cost-effective, and operationally effective in the intervening time.
In the United States, though, the straw that broke the camel's back, claimed Greco, was the industry structure. "In the U.S. the number and nature of the distribution partners the providers used was very different.
Here in Europe we have a large 'A' list of partners - (usually other carriers).
We won't be putting dozens of small, under-capitalized ISPs on the books only to see them not pay their debts."
Given the views of other carriers, the signs are that Greco may find some partners prepared to play ball. |
