Investors Business Daily on the DSL Horse Race...FYI...
<<Phone Carriers Staying Busy Pushing DSL Internet Access
Date: 6/30/99
Author: Reinhardt Krause
Who's rolling out high-speed Internet services over upgraded phone lines the fastest? Suddenly, it's a horse race.
US West Inc. grabbed the early lead. But SBC Communications Inc.
says it'll be the front-runner by year-end. And Bell Atlantic Corp.,
BellSouth Corp. and GTE Corp. also are stepping up.
They're all vying to sign up as many customers as possible to a service
known as digital subscriber line. DSL costs subscribers roughly $50 to
$60 a month. It works over standard copper phone wires to give users
Internet access that's 10 to 30 times faster than standard dial- up phone
modems.
Since they operate in different regions, the Bells don't compete head to
head in DSL. But they all see DSL as a key service to boost revenue and
to battle competing high-speed Internet access service from cable
companies.
US West rolled out DSL to consumers in January 1998. The smallest of
the regional Bells, US West signed up 25,000 DSL customers last year
and hopes to reach 125,000 by year-end.
SBC, a regional Bell that operates in Texas and California, says it
expects to sign up 200,000 subscribers, including consumers and
businesses, before 2000.
''We think we'll have more DSL customers (than any regional Bell) by a
wide margin,'' said SBC spokesman Doug Michelman. ''Our DSL rollout
is more aggressive than anyone else's, and we've got great markets
where there's probably more demand.''
SBC will have to work to maintain its standing, however. Of the Bells,
only Ameritech Corp. really lags in rolling out DSL, analysts say.
DSL should be available over nearly one-quarter of the nation's 158
million local phone lines by the end of this year, says Merrill Lynch & Co.
That's more than double last year's total.
Phone companies are upgrading systems to DSL technology to compete
with cable. About a third of U.S. cable systems have been upgraded to
provide high-speed data services.
Regulators like to see the phone company-cable rivalry.
''Where cable modem service has been introduced, DSL is following,''
said William Kennard, chairman of the Federal Communications
Commission, at a June cable industry meeting in Chicago.
To promote their DSL services, Bell Atlantic and SBC sought help. Both
signed separate joint-marketing deals last year with America Online Inc.,
the largest Internet service provider. In the regions covered by Bell
Atlantic and SBC, AOL offers its subscribers DSL access as a premium
service.
With allies like AOL, the regional Bells should gain ground on cable
rivals, analysts say. Cable modem service expects to have signed up 4.3
million subscribers by the end of 2002, up from 500,000 last year, says
market researcher Yankee Group.
DSL revenue for the Bells and GTE combined will rise to $1.4 billion in
2002 from $190 million this year, says Warburg Dillon Read LLC. The
firm says Bell Atlantic and SBC will reap the most DSL revenue.
Bell Atlantic, which is in the process of buying GTE, should top the
100,000 DSL subscriber mark this year, analysts say. It began selling
DSL last fall.
By year- end, Bell Atlantic plans to install DSL network gear in 353 of its
central switching offices, which route calls through neighborhoods. DSL
users need to be within 3.5 miles or so of central offices, because digital
signals fade over old copper phone wiring.
''Those 350 central offices cover 40% of the households we serve,'' said
Pete Castleton, Bell Atlantic's executive director of high-speed products.
''By the end of 2000, we have 800 central offices scheduled, which
would cover 80%.''
By year-end, it plans to have DSL services in New York, Boston,
Philadelphia, Pittsburgh, Washington, D.C., and parts of New Jersey.
US West, which operates in 14 states, also is making a big DSL
investment. It's upgraded about 225 of its 1,300 central offices and plans
to add 40 more this year.
''We cover over 5 million lines,'' said Mike Rouleau, a vice president of
marketing at US West. Despite operating in many rural states, ''We're
roughly reaching about 70% of our customers,'' he said.
Even if rivals catch up in terms of subscribers, US West may be a DSL
leader in other ways.
In about 2,000 households in Phoenix, US West has invested in
video-ready versions of DSL. To provide cablelike TV, DSL gear must
be installed in neighborhoods as well as central offices.
''They've (US West) clearly made the most concerted DSL effort,'' said
Michele Pelino, an analyst at Boston-based Yankee Group.
San Antonio, Texas-based SBC has about 2,300 central offices. By the
end of this year, about 525 will have DSL gear installed, up from 95 a
year earlier.
Warburg Dillon pegs SBC's DSL revenue in 2002 at $330 million, up
from $45 million this year.
Even so, SBC hasn't started to market DSL services aggressively,
Michelman says.
Instead, SBC has relied on press coverage and direct marketing, such as
bill-stuffers, to let people know about DSL. Spending money on a big ad
campaign hasn't made sense, Michelman says. First, SBC has to make
sure that most customers have DSL access in their area.
''We'll start more mass-marketing advertising later in the year,''
Michelman said. By then, he says, DSL will be available to more than
half of SBC's 10 million California customers.
GTE and BellSouth also are making headway with DSL.
BellSouth last year rolled out DSL services in Atlanta and five other
southern cities. It's expanding to 30 markets, including New Orleans, this
year.
About 280 of its 1,550 central offices will be DSL-capable by year-end,
analysts say. They expect BellSouth to sign up about 100,000 DSL
subscribers by then.
GTE began its DSL rollout in April 1998. About 550 of its 6,580 central
offices will have DSL gear by year-end, analysts say. Like US West,
GTE has plans to deliver video over DSL networks.
Stamford, Conn.-based GTE wants to have 50,000 to 80,000 DSL
subscribers by year-end, analysts say. It had about 10,000 last year.
One factor in how quickly consumers adopt the service is the rate at
which PC makers provide DSL-ready modems in their machines, says
Charles Lee, GTE's chief executive.
DSL-ready PCs are expected to ship from Compaq Computer Corp.,
Dell Computer Corp. and others late this year or in early 2000.
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