Your link led me to this article about ILEC deployment of DSL. Interesting take on these dinosaurs.
Will the RBOCs Turn DSL
Into Another ISDN?
Unless RBOCs shake off the old way of doing business and grab market share
before the cable companies finish upgrading their infrastructure, DSL could be
another well-documented failure.
Patrick Flanagan
Rather than hearing the sound of opportunity knocking, the RBOCs
are complaining about the noise when it comes to digital subscriber
line (DSL) technology. By all rights, DSL should be manna from
heaven for the RBOCs and GTE, which, as both an incumbent local
exchange carrier (ILEC) and IXC, is perhaps best positioned
geographically to exploit this technology. The RBOCs couldn't ask
for a more ideal situation. DSL is a premium value-added service,
there is little immediate competition, consumer and business demand
is there, and the technology is available and proven. However, at the
end of 1998, there were only about 39,000 DSL subscribers,
compared to 700,000 cable modem users. This is despite the fact that
for every one line configured for cable modem services, there are 20
telephone lines installed that can support asymmetric DSL (ADSL),
according to the 1999 MultiMedia Telecommunications Market
Review and Forecast.
It is hard to ignore the sense of deja vu that DSL conjures up when
compared to ISDN. Look at these similarities:
Confusing specifications: DSL varies greatly in bandwidth
availability, whether configured as ADSL, ADSL Lite (G.lite),
RADSL (rate adaptive), or IDSL (integrated), while ISDN
comes as Basic Rate Interface and Primary Rate Interface.
Slow rollout: When DSL will be widely available is anyone's
guess, but deployment is simpler than ISDN because ADSL
runs on overlay networks; therefore, the RBOCs don't have to
integrate or upgrade existing switches or deploy combined
signaling systems.
Complex end-user installation: It takes two technicians to
install and fine tune DSL (one for the circuit provisioning and
equipment, another for the modem), while installing ISDN took
a number of visits before it was at least somewhat plug and
play.
Noncompetitive pricing: The low-end pricing for plain vanilla
DSL (192/256 kbps) is $40 per month, which is a level set by
the cable modem industry and has no bearing on actual costs.
To reach 1.5 Mbps downstream, the cost is $60 to $100 per
month. A primary reason for ISDN's marketplace flop was
pricing, which originally was well over $100 per month plus
usage fees above a few hours. Today it runs $30 to $60 per
month.
Lousy marketing: Although the public and small businesses
seem to understand broadband technology better now, DSL
still must be deployed, priced and packaged better than ISDN
was. A look at ISDN line deployment in 1997 and 1998, when
demand grew considerably for higher speed Internet access,
shows few were buying. Total users went from just under one
million to less than 1.4 million.
The Opportunity Window
The RBOCs have a limited window of opportunity. Most view cable
modems as the primary threat, but the bidirectional hybrid fiber/ cable
infrastructure required to deploy cable modems passes only 12 million
homes worldwide, mostly in the United States. Conversely, the
RBOCs have ADSL-capable copper in virtually every office, home
and school, and the number of DSL-passed customers in the United
States at the end of 1998 was more than 19 million, according to
TeleChoice.
To duplicate this ubiquity, the cable companies need to spend billions.
For example, upgrading a coax system from unidirectional to
bidirectional requires new amplifiers that cost about $25 per passed
home. Upgrading from bidirectional coax to hybrid fiber/cable can
cost as much as $200 per passed home. “There's room for DSL to
pull ahead of cable modems, but it better happen by the end of 1999
or cable will take a commanding lead,” said Claudia Bacco, senior
DSL analyst for TeleChoice.
According to The Yankee Group, DSL consumer pricing cannot
exceed $40 a month, including ISP charges. This is where cable
modems are priced with their apparently faster downstream data rates
of 1.5 Mbps (however, users are on a party line that degrades service
as their neighbors join in). “Forty dollars is an aggressive level of
pricing, and this means that the cost of deployment, including the CPE
device cost, must come down to $100 to $150,” said Jim Wahl, a
Yankee Group analyst. The hardware costs will reach this level by the
second half of 1999.
The CLECs have a good head start, according to Wahl. Among the
reasons: There are no T1 revenues to cannibalize; there are few
legacy systems; and the infrastructure is designed for data delivery.
The largest advantage may well turn out to be the ability to “cherry
pick” or sign up those customers who want DSL and are willing to
pay for it now. Until now, the primary CLEC emphasis was on
replacement T1 services, such as SDSL, HDSL and IDSL, in
geographic areas with high densities of technologically advanced
consumers and businesses. Covad and NorthPoint are two examples
of CLECs putting this strategy into action.
One strategy the RBOCs could employ to counter the CLEC DSL
cherry picking is to dramatically reduce the price of leased-line
services. The Yankee Group estimate that these cash cows have
gross margins of 40 percent to 60 percent. “A 30 percent to 40
percent price reduction would dramatically increase their
attractiveness as an alternative to ADSL for small and medium
businesses,” Wahl said.
The Growing Cable Modem Menace
In metropolitan markets, DSL and cable modems will compete hotly
for large numbers of customers who are anticipated to have low churn
rates. The Yankee Group predicts that pricing for cable modems and
RBOC or CLEC DSL services will pretty much be the same. The
deciding factor may well be aggressiveness, an area where the
RBOCs have a poor to nonexistent track record for ISDN. They are
also running behind competitors. At the end of 1998, cable modems
had a “significant, yet surmountable lead,” said Wahl. There is
momentum on the cable side as well, with the Yankee Group
predicting that in 2002 there will be 4.3 million cable modems in use
compared to 2.7 million DSL customers.
An overlooked aspect of cable modems is their importance to the
IXCs, which are loath to collaborate in any way with the RBOCs.
The best capitalized of the cable modem providers is @Home, with a
$5.82-billion bankroll. AT&T owns 40 percent of @Home.
Microsoft's $1-billion investment in Comcast is well known, and both
it and Compaq are investors in Road Runner, @Home's biggest
competitor.
The Wholesale Only Option
One uniform aspect of DSL among the RBOCs is that they all have a
wholesale operation. Therefore, it is no surprise that the most
aggressive DSL vendors are little-known outfits like Red Dog and
City Access. Their primary customers are early adopters, who could
just as easily buy from the ILEC if it was making the same
promotional effort. Wahl said the wholesale avenue is the most
comfortable one for the RBOCs. “To protect their legacy T1 leased
lines, the RBOCs primarily want to target residential customers and
they don't know how to do this. Wholesalers do,” he said.
Significant wholesale revenues will come from IXCs offering DSL as
part of a bundled group of consumer services. In particular, Sprint's
ION network will rely on ILECs or CLECs to provide local loop
transport, which can produce considerable revenue with no
advertising or promotional overhead. This strategy already has
resulted in agreements by Sprint with SBC, GTE, BellSouth and
Ameritech for last mile ION connectivity, with trials to begin in late
1999.
Handicapping the Players
None of the incumbents will reveal exactly how many DSL
subscribers they have, but one player is clearly in the lead. US West
has deployed 80 percent or more of the DSL lines currently in
use--as many as 30,000 according to some estimates, with 85
percent going to residential customers. “They are rolling out DSL on a
large scale, including a very high bit rate DSL that can more than
compete with cable throughput,” said TeleChoice's Bacco.
In the middle of the field are SBC and GTE. SBC's rollout is largely
in California, where guaranteed bandwidth to the hub is also
provided. Such quality of service (QoS) guarantees are rare for all
forms of DSL, and Bacco said corporate users will be interested in
the guaranteed rate service for remote access to LANs. GTE
currently offers DSL in more states than any other provider--16--and
is believed to have the second most lines in service. Ameritech has
done little with DSL, but once its merger with SBC is completed it
could become more aggressive. “SBC is somewhat aggressive in its
DSL pricing at about $50 a month and this will help Ameritech,”
Wahl said.
At the back of the pack are Bell Atlantic and BellSouth. There could
be a new-found aggressiveness on the part of Bell Atlantic as a result
of its alliance with America On-Line (AOL). “This means they don't
have to worry about marketing,” Wahl said. It's hard to assess what
the impact of the Bell Atlantic/ GTE merger will be, particularly since
the companies are deploying DSL with products from two separate
vendors. “There's no natural fit, but deployment will continue because
they can't delay,” Bacco said. BellSouth has essentially removed itself
from direct DSL involvement by establishing BellSouth.com as an ISP
to handle all DSL marketing. “This strategy gives BellSouth an
opportunity to be aggressive in the residential market and stay one
step removed,” Wahl said.
Avoiding Another ISDN
Every telecom consultant Telecommunications interviewed had
numerous ideas on how the RBOCs can avoid another ISDN with
DSL. Here are a few that could work:
Make it cheaper: The objective is to grab market share.
Profits will be there down the road for the provider with the
largest DSL installed base. DSL will have a low churn rate
because of the high up-front costs. Had there been a large
installed base of ISDN customers, the RBOCs would now
have a lock on the DSL market.
Let others do the marketing: AOL could save the RBOCs
from themselves by providing the marketing and pricing needed
to get the consumer DSL market on board. There's a strong
motivation for AOL to go in this direction. Cable modem users
have to go with a cable-owned ISP such as @Home or
RoadRunner. Every DSL subscriber AOL gets means one less
customer lost to a competitor.
Make DSL plug and play: Only US West is encouraging
consumers to install their own DSL modems. If they do, it's a
savings of $195.50. The real market for DSL will be new
computers that are shipped DSL-ready. For this to happen, the
buyer must be able to complete the DSL connect without a
visit from a technician.
Kill ISDN: This is the first step toward simplifying the number
of broadband solutions. Free upgrades for existing ISDN
customers as part of DSL rollout, as Bell Atlantic is doing, will
keep the legacy broadband customer base loyal.
Offer a simplified DSL portfolio: A DSL product line with
one set of pricing that cuts across the traditional
consumer/business divide is necessary. There's a blurring
between consumer and business customers that makes two-tier
pricing obsolete. Small businesses in particular will respond to
product offerings that are easily understood and fairly priced.
This is a tall order for the RBOCs. If the DSL status quo remains, the
cable industry will dominate the broadband Internet access market by
as early as mid-2000. This is the first step toward providing an
RBOC-less telecom services bundle. DSL is a strategic technology
for the RBOCs to protect their local services franchise. But they must
act now.
Patrick Flanagan is a contributing editor with
Telecommunications. |
