DSL Prime: A $29 Billion Spending Gap

SBC has finally revealed in public a policy that many had privately suspected.

by Dave Burstein of DSL Prime and Future of TV [November 30, 2004]

"The difficult we do immediately. The impossible takes a little longer."
—Seabees slogan

SBC has committed to delivering the impossible. The SBC staff believe they can do it. Even if they partially fail, they'll be able to look back three years from now and know they were pioneers, squeezing more video into less bandwidth than ever before. The engineering team deserves respect.

But Wall Street believes SBC is underinvesting in the fight against cable, with Verizon and SBC an improbable $29 billion apart. Beyond the business issues, a more important question is should SBC's third of the U.S. accept a second rate Internet service. Even complete success of Project Lightspeed yields a primary Internet provider offering an unreliable 6 Mbps down, 1 Mbps up. SBC in 2010 will be offering slower speeds than France and Japan in 2005.

Deutsche Telecom similarly is not delivering for Germany. Next DSL Prime will have an open letter, Dear Mike and Matthias, urging them to do better for the people they serve.

Say hello to Mickey Mouse when the DSL Forum meets in Orlando December 6-9. The public session features Dr. Sachio Semmoto, President of the extraordinary but little known eAccess, a Japanese carrier ("ii" means "good" in Japanese) with over a million lines of DSL, followed by speakers from Telemar and Telefonica Brazil as well as Sergio Galban of Telecom Argentina. David Greggains chairs a panel that will review the industry's past and future with Forum presidents Hans Erhard Reiter, Bill Rodey, and Tom Starr. Greggains, Rodey, and Starr were on the first Forum steering committee back in 1994; Reiter joined the next year. No one has more experience to share.

SBC to 17 million: Drop Dead!
Extreme digital divide in Lightspeed
In an unusually frank powerpoint, SBC's Project Lightspeed, to quote slide 3, is a "Targeted deployment to 18 million households in 3 years to cover nearly 90 percent of high-value residential customers." Slide 14 makes clear how sharp is the targeting; 90 percent of high-value, 70 percent of medium-value, and only 5 percent of low-value. Cherry-picking is common, but rarely public in such a dramatic fashion.

SBC criteria for high and low aren't clear, but presumably are similar to Bellsouth's careful work. Income is a major factor, but is adjusted for education, family size (people buy broadband if they have kids in school), age (older folks don't go online as much, at least so far), language spoken, and similar. The correlation with race is presumably high, but well to do black neighborhoods will receive service.

Blair Levin of Legg Mason contrasts Verizon policy, which will offer to build out nearly an entire local market. Verizon should have a much easier time getting local video franchises, which Levin believes are required by the Telecom Act. SBC apparently intends to change or avoid the requirement, which on the language of the law would require them to share their video network.

If Lightspeed proves successful, SBC would be well advised to continue the build beyond 50 percent for business as well as political reasons. Many costs, including the all important subscriber acquisition, will be lower as more homes are served. The video backbone, OSS, sales training, and engineering costs will be proportionately less. While the number of boxes per subscriber acquired will go up, other expenses will be less, especially as equipment prices drop by 2008-2009.

Billion dollar Deutsche Telekom move on France, Spain
23 percent growth projected, twice German rate
Deutsche Telekom hasn't abandoned the dream of a European telecom empire, and with little competition at home is investing instead in France and Spain through unbundling. They look to be #2 or #3 in both markets, which will require pricing at about half the German level, not part of their announced plans. Their 3 to 4 million customer projection over 10 years suggests an ineffective overspend on marketing rather than a low-priced, high-speed service. That won't be competitive with FT as they battle Neuf and Free-DSL as part of a bundle in Paris is going to price about 20 Euros for 10 to 15 Mbps. Spain, with less competition, may be more open to DT. T-Online projects video sales more than twice as high as broadband in five years, a level far beyond any other in the world.

T-Online added 291,000 subs in Q3, almost all in Germany. After an initial lead in Europe in the CLEC days, Germany now is far behind France and Spain because of high DT prices.

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

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