Escape From DSL Hell
By Bernice Napach, Sm@rt Partner
It may be a shotgun wedding, but DSL providers and phone companies are now partners. That could be great news for your customers.
Want to hear a good horror story? Talk to Internet users who are desperate for high-speed DSL connections. Thousands of customers are stuck in so-called DSL hell, where infrastructure limitations and service-provider problems torture even the most determined users--including us.
But the nightmare may be over soon. Starting early next year, major DSL providers--including Covad Communications, NorthPoint Communications and Rhythms NetConnections--plan to begin simpler installations of their high-speed data services, courtesy of a government mandate requiring local phone companies to share their lines with DSL providers.
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The deployments could pave the way for ASPs, ISPs and Web integrators to offer more complex services to customers who otherwise lacked adequate bandwidth. But service providers also could face new competitive threats from their DSL counterparts, which ultimately hope to embrace end users and never let go.
Currently, most large DSL companies sell directly to large businesses or through telecom resellers, such as AT&T, and indirectly to residential customers and small-business users via ISPs. But that model is starting to change. Covad, for example, recently purchased Blue-Star Communications, a provider of broadband and Internet services for small and midsize businesses throughout the southeastern United States, allowing Covad to market directly to those customers. And NorthPoint--through a recent combination with Verizon--wins a closer relationship with residential customers.
What's Changing?
Using a so-called line-sharing configuration, DSL companies in the first half of 2001 will be able to split a single telephone line into one for voice and another for data, just like the local phone companies do when they provide DSL to residential customers. DSL providers no longer will need to install a separate telephone line at each customer site--which is a complicated, costly and time-consuming task.
Under the government's mandate, local phone companies also must provide DSL companies with access to their central office (CO), where the line-switching equipment is kept, usually within 90 days after receiving a request from the DSL company. That will allow the DSL providers to install the necessary line-splitter equipment.
The line-sharing and collocation rules are outgrowths of the Telecommunications Act of 1996, which was designed to promote competition in the telecommunications marketplace.
"Line-sharing is perhaps the DLEC's [digital local exchange carrier] biggest recent win," wrote Douglas Shapiro, an analyst at Banc of America Securities, in a recent report.
When line-sharing takes effect, DSL companies' costs to lease a line from local phone companies are expected to drop sharply, from about $20 per month to $10 or less--equivalent to cable-modem costs. Exact prices, terms and conditions of the line-sharing agreements between DSL specialists and local phone companies will be set by state public-utility commissions.
I Want It Yesterday
In the current marketplace, it takes an average of four to six weeks to install and activate a customer's DSL connection--assuming DSL service is available in the customer's location. With line-sharing, DSL installations are expected to take half as long, say industry experts.
The new process is fairly simple. DSL companies will only need to upgrade equipment on a customer's existing line, rather than ordering a second line from the phone company. Further complicating the current process, local phone companies have to dispatch a technician to add the extra line and test its ability to support data transmission. In our experience, many phone-company technicians aren't properly trained to perform that test. That caused finger-pointing between phone companies and DSL providers, creating further delays.
DSL providers are bullish about the new deployment methods. "The advantage to line-sharing is the ease of provisioning," says Scott Bonney, VP of regulatory affairs and deployment at Rhythms NetConnections. "DSL will be easy to get, easy to install and easy to use."
Rhythms and NorthPoint expect installation will be so simple, that they are gearing up to have customers install DSL themselves. The process will involve loading PC software that allows a modem to communicate with the customers' phone lines' high-frequency loop. On the back end, the DSL provider will install the line splitter at the phone company's central office. Still, there will be some complications. DSL usually can't be installed if the customer is located more than 18,000 feet from the CO.
Sign The Deal
To date, the big three national DSL companies have reached line-sharing agreements with all of the local phone companies, known as incumbent local exchange carriers (ILEC) or regional Bell operating companies. The FCC required those deals to be in place by June 6. The DSL providers say they also have reached interim pricing agreements for the shared lines and co-location pacts.
The three national DSL companies are now in the process of testing the lines, and they expect to finish rolling out the new lines during Q1 or Q2 of 2001.
Through line-sharing, DSL experts and phone companies--which increasingly offer their own DSL services--are establishing reluctant partnerships. "In this case, our major supplier is also our major market rival," says Bonney.
The ILECs enjoy an early edge over DSL specialists. At the end of Q1, ILECS had 868,000 DSL subscribers, compared with 231,000 for the DLECs, according to Cahners In-Stat Group. That gap is expected to narrow, and the mix of customers is expected to change as the DLECs concentrate on acquiring more customers by offering more services. Currently, the large DSL providers have a customer split of 20 percent consumers and 80 percent business, while the ILECs have the reverse--roughly 80 percent consumers and 20 percent business.
Still, local phone companies have the advantage of marketing DSL services to their existing customers simply by including a flyer in customers' monthly phone bills or by calling them. Local telcos also could start a price war, which the DLECs can't afford until the lower-cost line-sharing technologies take root. Either way, ILECs and pure-play DSL providers are about to collide.
Friend Or Foe?
But keeping tabs on rivals may be tough. Verizon Communications (NYSE:VZ - news), for instance, is no longer a competitor. Verizon has agreed to buy 55 percent of NorthPoint Communications and combine its DSL service with NorthPoint's. The combination will create the largest of the three national DSL providers, adding 221,000 Verizon DSL subscribers to NorthPoint's 62,000. The deal also gives NorthPoint much-needed financial backing.
Meanwhile, DSL companies are looking to add new higher-margin services, including Web hosting, online file backup and other security functions, VPNs and Voice over DSL. Some are currently developing links with content-delivery service providers and private-label high-speed services via turnkey connectivity.
But speed of deployment remains the first hurdle to overcome. "At the end of last year there were about 600,000 to 650,000 DSL lines installed, compared with a potential 180 million customers," says Michael Smith, a managing director at Stratecast Partners. "Deploying DSL is a very complicated task. ... For a company to succeed at DSL line deployment, it has to focus exclusively on DSL. It has to work with its operational support-system partners, who provide the software system for DSL."
Partnerships potentially could change if more DSL players are acquired. But one thing seems certain: DSL is not going away anytime soon.
Your Desktop Is Calling Again
After a year of hype and testing, Voice over DSL (VoDSL) is hitting the ground running. Don't blink, or the opportunity may pass you by.
"We installed 500 VoDSL lines in our first month," says Marc Sellouck, CEO of CLEC Transbeam. "We expect to have 10,000 lines installed by the end of the year."
Analyst Paul Baranello of the Dell'Oro Group says 8,700 VoDSL customer-premise devices shipped in Q2 of this year. "We expect that to pick up to 100,000 devices in the second half of 2000," he says. By 2004, more than 7 million VoDSL lines will be in use, according to, TeleChoice a market strategy consultancy.
The economics of converged voice/data services are compelling. Transbeam's most popular package includes a 1.1Mbps Internet connection, six voice lines with unlimited local calling, 1,000 minutes of long-distance calling and 50MB of Web space--all for $400 per month. But cheap local and long-distance calls are just a foot in the door. The Yankee Group says add-on custom-calling features generate more revenue than all data services combined, with profit margins reaching 78 percent. |
