No National DSL yet ???
TELECOM REPORT
High-speed Net access enters new era
Prices likely to remain high, availability, services spotty
By Jeffry Bartash, CBS.MarketWatch.com
Last Update: 5:01 AM ET Oct. 13, 2001
WASHINGTON (CBS.MW) - AT&T and Worldcom have snapped up
valuable assets of failed high-speed Internet providers, but don't expect
big long-distance carriers to emerge quickly as formidable rivals to the
Baby Bells and cable operators.
For now, the long-distance carriers are quietly acquiring assets and slowly
expanding their reach, careful not to spend too much without generating
sufficient revenue in return.
For most consumers and people who work from home, they'll likely have to
choose from their local Baby Bell phone company or, if they are lucky, a local
cable operator. Yet many others, especially in rural or less densely populated
areas, won't have either option. In their case, lower-grade satellite services may
be the only answer.
Small and medium-sized businesses might have somewhat greater if still limited
choices among DSL suppliers, though cable is not an option since it's mostly
unavailable in commercial districts.
With competition scant, customers should expect prices to remain relatively
high, availability erratic and services spotty for the next couple of years.
Market implodes
Two years ago, the fledgling high-speed Internet market seemed flush with
competition. A wave of phone-based startups laid down roots while cable
operators pushed to expand service. At the same time, companies such as
Teligent and Winstar Communications moved to offer fixed-wireless service and
satellite operators such as Hughes (GMH: news, chart, profile) and Starband,
backed by EchoStar Communications (DISH: news, chart, profile), entered the
game.
The new challengers even forced the Baby Bells to speed up rollout of
high-speed Internet access. As its new rivals constantly liked to point out, the
local phone giants had sat on so-called digital subscriber line technology for
more than a decade.
The plunge in the U.S. stock market and downturn in the economy, however,
have dealt a severe blow to new competitors. Debt-laden Teligent and Winstar
were forced into bankruptcy court, as were DSL suppliers Northpoint, Rhythms
and Covad Communications. And satellite service has not proven to be a major
competitor - yet.
The result: The Baby Bells and cable carriers have
been left to dominate the consumer space, while the
Bells also largely control the small and medium
business market.
"The Bells own the DSL market now," said Rob
Carlson, an industry researcher at Current Analysis.
Gearing up
AT&T's purchase of Northpoint assets and
WorldCom's acquisition of Rhythms' network gives
fresh hope that more competition is on the way, but
analysts and executives downplay such a scenario
for now.
"What we've said is that we will enter the market on a
very limited basis by the end of the year," said AT&T
spokeswoman Ellen Zundl. "Frankly, we don't want to
crow about it."
It's easy to understand why. DSL networks have
proven both costly to build out and tricky to set up.
Customer complaints abound (See the Web site, DSLreports, for reviews and
availability).
"Rather than have too many irritated customers, they want to limit outreach,"
noted Ernie Bergstrom, a market researcher at Cahner's InStat Group.
Fortunately for the long-distance carriers, they have the advantage of hindsight.
They were able to watch the startup DSL companies fail and learn from their
mistakes. They were also able to cut their own costs by obtaining DSL assets
at firesale prices.
AT&T (T: news, chart, profile), for its part, is the only major nonBell company
that plans to target the national consumer DSL market. Eventually, Ma Bell
hopes to offer local, long-distance, high-speed Internet and other add-on services
to its current customers. It already offers cable broadband -- AT&T is the
nation's largest cable operator - but its cable network doesn't reach more than
one-third of American households.
Until AT&T's nascent DSL service grows up, choice will be limited. "For
consumers, I don't think we'll see much beyond the Bells and the cable
options," said Cynthia Brumfield, principal analyst at Broadband Intelligence.
Even Ma Bell's long-term staying power is questionable. "Nobody knows what's
going to happen with AT&T," argued Dave Brustein, editor of DSL Prime, an
industry newsletter. Alluding to AT&T's plan to break up into four companies, he
said, "They don't even know what the company is going to look like."
Business is business
Sprint (FON: news, chart, profile) and WorldCom (WCOM: news, chart, profile)
officials, meanwhile, told CBS.MarketWatch.com that they have no plans to
offer consumer DSL service nationally. Both are chasing business users and are
expected to extend their reach over the next few years.
"They are different technologies, different markets," said Charles Pluckhahn,
head of communications research at Stephens Inc. "Business DSL is more cost
effective to deploy. The consumer market is just too costly."
WorldCom began offering DSL in late 1998 and Sprint starting pushing its
service last spring, but neither covers more than half the country. And it will be
awhile before they do. Amid the economic downturn, both carriers have cut back
on capital spending and aren't going to overreach.
"They have been working quietly in the background," said Carlson, who asserted
that it took startups such as Covad "four years before they did it competitively."
Cable, for its part, is starting to recognize the potential of the business market,
but it will take several years before they can gain critical mass. Right now, cable
only supplies 4 percent of all high-speed business connections, Bergstrom said.
Not surprisingly, the relatively slow rollout of high-speed Internet service and
paucity of competition has angered consumer groups, frustrated lawmakers and
exasperated Internet retailers and computer giants such as Microsoft - never
mind consumers and businesses.
Still, it appears there is little Congress or the Federal Communications
Commission can do. Legislation on the hill to ease requirements on the Bells -
the so-called Tauzin-Dingell bill - is unlikely to pass. And most of the newer
high-speed suppliers have fallen by the wayside.
Until the economy recovers, technology improves and costs come down,
consumers and businesses are going to have to live with the status quo. It could
be three to five years - or even more - before high-speed Internet access
becomes cheap and universal.
The situation isn't quite as bad as it seems, however. As the FCC recently
noted, 75 percent of all U.S. zip codes now have some high-speed access. At
the end of the second quarter, DSL users numbered 3.3 million and cable
broadband 5.5 million, Brumfield noted.
And suppliers clearly recognize an opportunity for new sales and profits. The
Bells have continued to register double-digit growth in new users each quarter,
while cable companies are aggressively marketing to consumers and starting to
eye the business market.
"It's still an industry in its infancy," Zundl pointed out. "There's an awful lot to do
here."
Jeffry Bartash is a reporter for CBS.MarketWatch.com in Washington. |
