DSL Prime News: The Inside Source

Will the markets prevent the Bells from investing? The answer appears to be that the markets will reward companies that invest billions in the future. And the future is now.

by Dave Burstein DSL Prime [July 14, 2003]

"If it does not say 'FTTP' then I am not spending much time on it over the next few weeks."—One of many chief marketing officers

$35 unlimited local and long distance is Cablevision's new offer, the kind of challenge inspiring the Bells to move ahead. It's VoIP backed by a Siemens softswitch. Verizon's similar package is over $70 with hidden charges, MCI and AT&T not much cheaper. If Brian Roberts at Comcast decides to offer similar, the basic business model of the telcos falls apart. Yahoo BB's success against NTT is the wake up call to every smart operator in the world; 3 million will have switched by the end of this year, and NTT itself had no choice but to offer 6 cent calls to New York to fight back.

Will Wall Street and the City of London allow telcos to make the investments? Verizon is spending a third more, and has opened a $20 billion gap in value over SBC, after five years of nearly identical market caps. Some think that's a personal judgment on CEO Ed Whitacre, but I prefer to believe the market thinks SBC has cut back too much. "Reducing debt" was last year's mantra; preserving the basic franchise with investment seems smarter to me. BT, at least at the top technical level, agrees; the public announcements are just the beginning of a very ambitious "21st Century Network". Belgacom also "gets it"—look for a major VDSL announcement soon.

FTTP is exciting and confusing everyone, but a little arithmetic puts it in perspective. 2.5 million lines a year is an impressive $2-3 billion, but that's still only 10 percent of Bell capital spending. At that rate, it would be 2009 for 10 percent of the U.S. to be reached—meaning the Bells need another response to cable for 90 percent of their market. It also makes the cost easier to justify: until 2008, the actual deployment will be concentrated in the least expensive areas, including new builds, BellSouth's existing million FTTC homes, inexpensive high density aerial installs, and perhaps basement DSLAMs in large buildings already reached by fiber.

Congratulations to Siemens on a major DSLAM win in Vietnam, about which I hope to have more info next issue. I also held over an article on "DSL Everywhere", hoping a reader can provide me hard data on the installation costs of repeaters.

Surprises: Marconi/BT, Surewest/Occam, UTStarcom/Cyprus
BT plans far more than a simple DSL upgrade, with extensive plans for a full next generation upgrade. Alcatel and Fujitsu had shared the DSLAM contract, so this is a major breakthrough for a company that had virtually dropped off the radar screen. A competitor wrote, "Marconi's win is no surprise. Think of the future of the last British high tech manufacturer, if it doesn't get deals in the home market." But BT is now operating with little government intervention, and is under enormous pressure to raise profits. They rarely make "sacrifices for the country" these days; Marconi had to offer highly competitive price and performance in a bid the world is watching. At least one other vendor will be announced.

UTStarcom is the second largest DSLAM manufacturer, but almost all their sales have been in Asia. Yahoo BB's demand was enough to make them a world leader, and they've just sold another 100,000 lines in China. The Cyprus contract is their first announced in Europe, and they will likely bid on all the European tenders as well. In North America, they are on the short list for the hundreds of thousands of lines of video at Telmex, and a contender in at least two other significant contracts.

Occam has interesting products but few sales, and they don't have the cash to subsidize a "reference customer." So this win had to be based on the strength of their product. Surewest CTO DeMuth listed Occam's GigE interface as a key advantage, driving down the cost of their video service. Surewest, one of the most innovative of the smaller telcos, offers DSL or fiber to 100 percent of their subscribers, and hasn't found the occasional repeater install a prohibitive expense.

Routers at modem prices, redux
Efficient adds 802.11g, home powerline
Tom Willie hopes to make 802.11(and therefore routing) standard on all DSL modems within the next 12-18 months, at price points similar to what people are buying dumb DSL modems at today. Picture a single Ethernet DSL modem with a wireless antenna as the standard offering of the ILECs. That could provide the added stickiness they are looking for against the cable guys. Efficient just announced 802.11g as well as powerline home networking. Siemens has some of the right products to compete for the Bell FTTP bid, although of course Alcatel is the frontrunner.

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

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