Analysts remain rosy about DSL
By Craig Matsumoto, EE Times
Apr 11, 2001 (12:33 PM)
URL: eetimes.com
DENVER — Despite some high-profile crashes and an abandonment by Wall Street, the market for digital subscriber line (DSL) services is still healthy and likely to rebound within two years, according to speakers at the DSLCon conference this week. A panel of analysts at DSLCon agreed that the industry has seen some flawed business models, particularly from the data local exchange carriers (DLECs) that are now seeing hard times. But speakers insisted that demand for DSL remains high and that larger carriers still have big plans for the technology.
Analysts at Gartner Dataquest call this period the "trough of disillusionment," said Kathie Hackler, a vice president with the research consultancy. It's a typical pattern for any hyped technology, she said.
"The question is how long you stay in that trough before getting to the 'plateau of productivity,' " she said.
DSL still has sore spots that will hamper the technology as it tries to catch up with cable modem deployment, however. Analyst forecasts concur in projecting that the number of DSL connections should increase from about 2.2 million today to between 14 million and 16 million by 2005. But all those predictions show cable modems outpacing DSL lines by a few million.
Business isn't necessarily that bad, said Jay Fausch, senior marketing director for Alcatel USA. The industry's average growth may have stalled, but that's due to slowing business from DLECs and competitive LECs.
In fact, incumbent carriers are seeing DSL growth increase, hitting a 52 percent rate during the fourth quarter of 2000, compared with 44 percent the previous quarter, Fausch said. Allowing that the downturn could still hit big carriers, Fausch said, "We're watching the first quarter very closely."
The analysts agreed that DSL's prospects haven't dimmed overall. "I'm not sure how much trouble the DSL market is in," said Jason Marcheck, an analyst with The Strategis Group. Other analysts agreed that the troubles are concentrated in particular groups of players, particularly the DLECs.
DLECs approached the market by selling DSL services to businesses, using equipment installed in ILEC central offices. But the model proved too popular — central offices were swamped with DLECs, each assuming they could grab an easy 15 to 20 percent of the DSL market. "That really cuts down your penetration, when you have that kind of competitive overlap," said Matthew Davis, an analyst with The Yankee Group.
Overbuilding pain
"Within two years, DLECs are going to change their model, be acquired or like Northpoint go out of business," Hackler said.
Overbuilding also hurt DLECs and incumbent carriers. Alcatel's Fausch estimated that only 930,000 of the DLECs' 7 million available DSL ports were active — a 13 percent utilization rate. Gartner Dataquest's Hackler came up with similar numbers for the overall industry: 2.5 million DSL lines in use, versus 10 million lines' worth of equipment shipped.
"That's a lot of ports gathering dust, not generating revenue," Fausch said.
Moreover, the testing and activating of those lines — a process known as provisioning — remains costly and troublesome. Even if handled by a single service provider, provisioning crosses multiple divisions, requires multiple orders to disjointed parts of the company, plus one or more "truck rolls" in which a technician arrives on-site to complete or check an installation.
On the customer side, DSL self-provisioning kits are beginning to proliferate, making the process simpler. Customer installation kits have worked on the first try 90 percent of the time, Marcheck said.
The rest of provisioning requires a tangled set of line testing and equipment testing, as well as upgrades to billing and other software systems. On average, provisioning takes 51.5 man hours and $1,950 in labor costs alone, said Kevin Neimi, vice president of engineering for Quintessent Communications Inc. In a presentation on provisioning, Neimi said the process takes an average of 62.4 business days and in some cases has stretched to 120 business days.
Price also remains an issue for the long term, however, as it's not likely customers will accept DSL prices of $40 per month, the analysts said. All three agreed that a price closer to $25 per month — essentially the same as dial-up access — is required if DSL is ever to become a mainstream hit.
But at the same time, $40 clearly isn't enough for providers to recoup costs. "I don't think anybody is making money at it, not even the ILECs," Hackler said.
And consumer's don't appear to be ready to pay extra for services such as video on demand. "The primary application today driving deployment of DSL is residential Internet access," Fausch said.
Still, DSL executives remain optimistic — in fact, a panel of CEOs said they expect a turnaround to happen within six months. Analysts were less optimistic, citing figures that ranged from eight to 20 months, but they noted that some reasons for hope. For example, incumbent carriers are raising DSL prices as competition begins to fade, and the analysts called this an important short-term step to help recoup costs.
"Investment in DSL is probably the telcos' single best hope for retaining growth and retaining subscribers," Fausch said. |
