The Need for Speed
DSL: The Baskin Robbins of Broadband
Broadband May 31 2000 2:13PM CST
by Chris Connor
Introduction
Just as Baskin Robbins purveys a multiplicity of ice cream flavors there are various entities that offer many versions of digital subscriber line (DSL) technology. For example, there is Asymmetric DSL (ADS), G.Lite, High Data Rate DSL (HDSL), ISDN DSL (IDSL), Symmetric DSL (SDSL), and very high data rate DSL (VDSL). ADSL is by far the most popular flavor of DSL because it caters to the needs of most Internet users. Instead of providing similar download and upload speeds like SDSL, ADSL provides substantially higher download speeds (1.5 to 9 Mbps) than upload speeds, because the majority of people download rather than upload. Upload speeds are not shabby either, since they range anywhere from 64 Kbps to 1.5 Mbps. G.Lite is basically a version of ADSL that goes through all the wiring of a house, thus limiting its speed because some of the bandwidth is consumed by noise. HDSL is a good replacement for T1, another broadband technology used by the phone companies, because HDSL does not require a repeater every 6000 ft to boost the strength of the signals like T1s do. IDSL is essentially DSL based on ISDN technology with data speeds of only 128 Kbps, but IDSL is capable of providing broadband access at significantly greater distances than ADSL. Although it is not widely deployed yet, VDSL offers higher speeds than all the other DSL technologies because the signals are transmitted only over short distances. The shorter the distance, the faster the access speed.
Strengths
DSL is currently the best broadband technology offered by phone companies. DSL succeeds where the phone companies' former attempts at providing broadband access (ISDN) failed. DSL offers both cheaper access and faster access speeds than ISDN because DSL bypasses the voice switch while ISDN has to pass through it. Not only does the voice switch slow down access speeds, but it must be upgraded before ISDN can even be made available to a customer. T1 lines are significantly better than ISDN, but T1s are limited to speeds of around 1.55 Mbps. With that being said, phone companies have a considerable interest in furthering the future of DSL because DSL is the phone companies' answer to competition presented by cable modems. Most importantly, DSL leverages phone companies' existing infrastructure while cable companies have to rebuild their networks to support two-way traffic.
Weaknesses
Cable broadband access subscriptions are outpacing DSL subscriptions by a ratio of three-to-one because of two major weaknesses of DSL. First, DSL has a problem with distance. The farther away a customer is from a central office or CO (the location from which the telecom companies run the signals), the lower the connection speed to that customer. The major cut-off point at which performance really deteriorates is at 15,000 to18,000 feet. The second problem deals with the installation of digital loop carriers (DLCs) because DLCs block DSL signals. DLCs were added to some phone systems in response to the need for additional phone lines due primarily to Internet use. People wanted additional phone lines so that they could use the Internet while still being able to make and receive phone calls. These DLCs were used to add phone lines to households and businesses.
The Key Solution to DSL's Problems?
As a response to DSL's current shortcomings, one DSL company may have come up with a solution that could propel DSL into the mainstream. Paradyne {PDYN}, once a part of AT&T {T}, recently introduced a new IDSL line card and router to its Hotwire system that bypasses DLCs and allows DSL providers to reach customers farther away than 15,000 feet without incurring a dramatic drop in performance. Paradyne is able to break the distance barrier for DSL with its patented Hotwire Multiple Virtual Line (MVL) technology. This breakthrough technology from Paradyne could be a major boon to DSL service providers because it allows them to spread their considerable costs over a larger installed base due to the additional customers that this technology makes it possible to reach. Lucent {LU} and several others are also working on curing DSL's major weaknesses with products of their own.
Major Players
Although a single company has not yet emerged to dominate the entire DSL equipment market, several companies have established strong positions in their respective areas. For instance, Copper Mountain {CMTN} leads in providing DSL equipment to businesses, while Alcatel {ALA} has the edge in providing DSL equipment to the consumer market. According to the Dell'Oro Group, Efficient Networks {EFNT} leads the DSL customer premises equipment (CPE) market since the company shipped 290,000 units of CPE products in the first quarter of 2000. As far as DSL deployment goes, an aggressive merger and acquisition program has propelled SBC Communications {SBC} to the top with over 300,000 DSL subscribers; this customer base comprises close to half of all DSL subscriptions. SBC consists of such powerhouse telecom companies as SBC Telecom, Ameritech, Southwestern Bell, PacBell, SNET, and Nevada Bell. Finally, Dataquest ranks GlobeSpan {GSPN} as the number one DSL chipset maker in terms of shipments. Investors should take note that Wall Street has placed the highest premium on GlobeSpan of all the major pure-play DSL stocks; Globespan registers a price to sales ratio of about 53 and a whopping market cap of about $5.3 billion. In other words, investors seem to think that GlobeSpan has the most potential of all the pure-play DSL stocks.
Outlook for the Future
As opposed to cable, which has just one major ISP with At Home {ATHM}, DSL has both the RBOCs (Regional Bell Operating Companies) like SBC and Bell Atlantic {BEL}, and data-focused competitive local exchange carriers (CLECs) like Covad Communications {COVD}, North Point Communications {NPNT}, Rhythms NetConnections {RTHM}, and DSL.net {DSLN} to provide broadband access via DSL technologies to customers. This intense competition in the DSL market should further spur growth as DSL becomes available in more areas. Furthermore, there is a possibility that the DSL industry could work in cooperation with the cable industry since broadband is still in its infancy. The aforementioned CLECs, which are pure play DSL stocks, could offer DSL connectivity to markets outside a cable company's reach. For example, At Home signed a multi-year strategic agreement with Rhythms to allow At Home can expand its overall broadband footprint. At Home needs Rhythms to expand its footprint because At Home's cable partners do not own networks in most of the markets that Rhythms serves. The backbone for these DSL services will be supplied by At Home, while Rhythms' network will serve as the "last mile solution" to the customers. Although copper phone lines should eventually be replaced by fiber optics, DSL will likely catch and surpass cable broadband access provision in terms of the number of subscriptions as the dynamic duo of the telephone giants and the pure-play DSL service companies drive impressive DSL growth over the next two to three years.
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