DSL Prime: Qwest Prices Kill DSL VoIP

No other observer has noted this salient fact: at some telcos, DSL prices and monopoly bundle strategies will hold back the VoIP technology wave, harming independents like Vonage.

by Dave Burstein DSL Prime [January 5, 2004]

"One connection is cheaper than two."
—Dave Burstein.

Many will drop their telco line and do voice over cable.

My DSL connection is too darned slow, I realized, as Jennie is 2,000 miles away with a miserable flu. I wanted to cheer her up with a few episodes of comedies like S. and the City from my computer. It took hours to send them, even at half the size of the cable original and a Speakeasy/MCI DSL line that's three times as fast as what Verizon sells. Later on, I downloaded Red Hat to learn on my machine, and had to leave it working overnight. I wince when friends at telcos ask me "Why do people want more speed?" wondering if they understand how even a teenage game player uses the net.

The 20 percent of Koreans who have already upgraded to VDSL (10-50 Mbps) prove the demand is strong for higher speeds, if priced fairly in relation to cost. Korea Telecom and Masayoshi Son, pioneers of the fast web, tell me the difference is $1 to $3 per month, and dropping. Few use the speed often, but it's great to have when you need it. 2.3 GHz Pentiums are cheaper than 400 MHz computers were a few years ago, and 30 Mbps DSL modems are cheaper than 2 Mbps modems were not long ago. Backbone costs continue down, and peering is easier. Sophisticated market research and traffic analysis have persuaded cable companies to go for higher upstream speeds, with symmetric service over 10 Mbps the goal.

VoIP works so well giants like AT&T are ready to switch, not just make pr announcements. The result is fear and trembling at the telcos grown fat on access, and battles in D.C. Article at end—I know regulation stories bore almost everyone not in the game.

Qwest: Keep VoIP off our DSL lines
Pricing effectively will block VoIP, except their own second lines
Press nationwide applauded Qwest for offering VoIP. A week later, the press ignored new Qwest pricing that all but eliminates competitive VoIP providers on Qwest DSL lines. The new Qwest bundled pricing effectively requires DSL customers purchase a $28 (or higher) Qwest phone service. If you instead take the minimum voice package, they raise the price of DSL $13, from $31.95 to $44.95.

That $25 to $30 minimum kills the economics of adding even an inexpensive $20 VoIP package. The cost of Qwest "extended basic" plus the VoIP will be more than the same service (including LD) from Qwest in 90 percent plus of the basic lines. Qwest will not sell DSL unless you buy their phone service, and the majority of Qwest territory does not have an alternate DSL provider. Their spokesman points out that the customers affected can shut down their Qwest service and make their calls over their cable modem.

Solution: customer choice
There's no technical reason why DSL and voice service need to go together, and smart regulation would allow the customer to choose. Canada, Kentucky, Louisiana and Georgia have that rule, and BellSouth's objection was just overruled by Federal Judge Joseph Hood "BellSouth may not refuse to provide DSL to Cinergy, AT&T, and MCI customers. A Kentucky customer must be able to obtain DSL service regardless of the voice carrier he chooses."

Alternately, a customer should be able to choose to order DSL without voice service at a fair price. The Bells have established DSL linesharing at $3-$6 of the basic line charge of $10-12, so the supplement for DSL without a phone line should be no more than about $7. I'd take it immediately, use Vonage or one of the newer services, and save money.

13 Mbps, 50 Mbps: same backbone demand
So far, no increase in backbone needed
KT tells me, "In tests, we've supplied the same GigE loops to DSLAMs serving 20 and 50 Mbps as we do for 10 and 13 Mbps. The customers love having the speed, but in practice use it so rarely the increase in demand has been barely noticeable. That will change, of course, but we don't anticipate heavy traffic for several years. We're putting in the 50 Mbps VDSL because it will cost little more, and should meet many people's needs for many years. We also will have plenty of capacity for the video we and independents plan to offer over the network, and incredibly realistic live actions games."

If the backhaul is virtually the same, the difference in cost of providing much faster service is very small, less than $30 in equipment. Masayoshi Son estimates the higher speeds add 2 to 4 percent to his cost. Yahoo BB, followed by NTT and Belgacom as well, proved that increasing peak speeds is an inexpensive customer friendly move, that costs surprisingly little because the total demand goes up far less than proportionately.

Copyright 2004 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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