DSL Prime News: The Inside Source

While the United States makes do with speeds of 1.5 Mbps, the rest of the world delves into VDSL. As churn falls elsewhere, certain U.S. companies are more hated every day as they fail their customers but continue to bill them.

by Dave Burstein DSL Prime [January 9, 2003]

"Deliver 100 meg to almost all Americans"
—John Cioffi's New Year Resolution

Is 100 meg an impossible dream? Only if carriers and governments remain pigheaded, and block the 20 to 100 meg that is the obvious and affordable next step for the internet. NTT is already spending $3 billion on fiber to the home, enough for millions of users. Cioffi and others are proving that a well designed VDSL system can deliver speeds twice today's 40 to 50 meg, with a cost BT estimates under $900 and dropping. I just learned Korea has a tender for 1.5 million lines of 40 meg+ VDSL for delivery in 2003.

The smartest folks at the telcos want to invest significantly in finishing the DSL build and starting aggressively on fiber to the home or fiber to the curb. A strong service is the best way to fight the growth of cable, wireless, and VOIP substitution which will accelerate in 2004. 768 Kbps or even 1.5 Mbps just won't compete in 2005 with DOCSIS 2.0 with Gig-E backhauls. The right decision is to move forward, fast, and explain to Wall Street that you'll either take an earnings hit for three years or face a crisis in four. D.C. is ready to subsidize most of the investment, with Cisco, Intel, and Technet cheering them on. A key session at Fast Net Futures will be DSL Now, Fiber Next.

CEOs Armando Geday of Globespan, Behrooz Rehvani of Ikanos, Mike Apgar of Speakeasy, and analyst Tim Horan of CIBC have joined Fast Net Futures in San Jose April 1-3. The bandwagon's building even before the most invitations go out later this month. The site's here, but it'll be mostly stealth mode until the end of January. Save the dates.

Meanwhile, the Bells gained $21 billion on the stock market on Monday. Yoshi Dreazen and Shawn Young wrote a Wall Street Journal article on FCC draft UNE plans. Dreazen and Young put appropriate caveats in, but the street inferred that Powell, Abernathy, and Martin will let the Bells cripple the current competition from AT&T and Worldcom. (See below for some actual comments by Kevin Martin, however.) That one day gain (probably illusory) is ten times the $2 billion cost of completing the 80-85 percent DSL buildout.

Using the regulatorium to exclude some competitors merely puts off the need for telcos to grow another line of business. Consumer as well as business VOIP is ready to take off, which is going to pull massive business away from the telcos. Like lines lost to competitors, lost revenue can't be matched by expense cuts proportionately, so the bottom line is hurt badly. Anyone who doubts, please e-mail me and I'll call you on my Vonage/Cisco phone plugged into my DSL router. Simon Romero in the Times this morning discussed how well that works over cable lines as well. BellSouth is considering offering VOIP as a second line & LD service to anyone with a cable modem, so as not to lose all the revenue when cable telephony (also VOIP) starts hitting hard.

I'm spending the week in Vegas at CES. Powell, Martin, and Jay Fausch are speaking Friday, Wozniak on Saturday. Say hello to the round fellow with a beard if you're there, or e-mail me to get together.

Churn's high in North America
2 percent and more per month
"I'll never give up my highs peed connection!" users report around the world, but in fact North American telcos are seeing customers drop at a far higher than expected pace. No one would go on the record, but at least two carriers are over 2 percent per month. Belgacom, Deutsche Telekom, and even Telecom Italia on the other hand have rates under 1 percent per month—Steen of Belgacom says it's so low he doesn't even follow it.

In North America, high churn in the past could be blamed on operational problems, including SBC's missing 100,000 customers ascribed to a "database problem." Failing CLECs turning over customers also inflated the figures, but that's only a part of the problem. Operations, still imperfect, are much better, but churn stays high. Too many customers are dissatisfied. SBC, for example, may have improved a quarter by dumping the DSL escalation group at Dublin and the like; but cutbacks like that result in poorer service and stunt the company's future.

Customers bought with promotions are fickle, and vulnerable to loss when competitors in turn offer deals. With free modems and setup, it's easy for a customer to move. In Canada, introductory offers are as low as $15 per month, winning the kind of customers liable defect to cable when they make a counteroffer. Verizon, SBC, and Covad have invited similar problems in the near future, signing up customers with low introductory rates for just a few months. That tempts them to switch providers when their rates go up.

Another problem showing up as churn is customers who never got their service connected, but were too proud or frustrated to work with customer service to solve that problem. I've heard report after report of customers who never got things to work, and after a few months just cancelled. A high percentage of AOL customers never logged on, then eventually cancelled, and I suspect the number at SBC and Verizon are higher than anyone admits. It's so hard to resolve things with the billing department, people just pay to protect their credit. Then CEOs wonder why people hate their company.

Copyright 2003 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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