DSL Prime: Growth Will Slow

As broadband reaches the 75 percent mark in many customers, many of the remaining customers don't have it because they don't want it.

by Dave Burstein of DSL Prime and Future of TV [July 24, 2006]

"[On Google's Mountain View net,] it is unlikely that a Wi-Fi enabled laptop or computer with a conventional Wi-Fi card will work indoors at most locations."
—Katie Fehrenbacher reporting for GigaOm.

With Wimax modems costing $250, the wireless revolution will come slowly.

Korea's government just demanded the resignation of LG Telecom CEO Nam Yong. The company didn't build the 3G network promised by their franchise commitment. Korea insisted the responsible official be fired, rather than just fining the shareholders.

• Imagine if Citigroup CEO Sandy Weill had been fired after the Jack Grubman research scandal? They worked closely together. Brady Dougan is still head of CSFB, although he crafted a culture that produced excesses in the Wall Street research scandal.
• Similarly, France Telecom was fined $300 million for mobile price fixing. CEO Thierry Breton has since left the company—for a job as France's Finance Minister.
• Alcatel's Edgar Valverde recently went to jail for $13 million in bribes in Costa Rica. President Miguel Angel Rodríguez of Costa Rica was jailed in the case. Alcatel won't even answer questions about whom Valverde reported to, much less investigate its own management. If Valverde's bosses weren't complicit, they should be fired for incompetence for letting $13 million disappear in their division.
• Broadcom is facing a $750 million restatement after falsely accounting for option dating. Will they go after then CEO Henry Nicholas who still holds a billion dollars in Broadcom stock?

Dan Reingold, lauded telecom analyst, advises, "go after the men at the top. Otherwise, the message is that crime pays, and the scandals will be repeated."

Lots of good news for the DSL industry! I'm hearing chip sales surprisingly higher than projected, because of new builds as well as churn. DSL in the U.K. is exploding as Murdoch's BSkyB, Orange, and Carphone Warehouse all advertise "free" service. They're lying. The real cost including the BT line charge starts at $20, but the net result is improved prices. AT&T just launched Homezone, with prospects of a million 2Wire satellite + DSL video gateways. A dozen friends have been giving their all to find a market for bonded symmetrical DSL, and now BellSouth has placed a big order. Ikanos has a new VDSL chip, with twice the reach for the 100/100 meg service. All that and more in another issue coming in a few days.

Glad to be able to report job openings [For job ads, visit the DSL Prime website]. I just met a 15 year Lucent veteran who's having trouble finding work, so I'm keeping the employment ads free. Do have your company send in your openings.

Cold equations: DSL growth soon over in most countries
Can't reach beyond 100 percent
72 percent of U.S. home Web users connect via broadband, leading Nielsen/NetRatings analyst Jon Gibs to conclude growth "will flatten off at this point." The arithmetic is inexorable: his May number is up 15 points from a year ago. Total Internet users are growing slowly, so 100 percent of them would be on broadband in three years, which is unlikely. Any growth in broadband Internet would be limited by the growth in the number of Internet users, generally modest. Gibs' slowdown prediction corresponds with what we've seen in Korea, where growth is minimal as broadband penetration passes 75 percent of homes.

U.S. growth has been strong for several quarters, and could continue well for several more. AOL is pulling all their marketing dollars out of dialup, just milking what's left and reselling DSL. After three years of stagnation, the Bells are filling in gaps (Verizon West Virginia, AT&T Indiana) as the equipment is now so cheap they have no excuses. The Sprint and Alltel spinoffs are completed, so their capital spending freeze is coming off. So Gibs and I are hesitant to say when the big drop in "net adds" will hit.

Broadband penetration is even higher in most of Western Europe, Korea, Taiwan, and Hong Kong. In Taiwan, 4.2 million broadband users (90 percent DSL) dwarf the 1.7 million dialup customers remaining. There may be more room for expansion in China (about 30 percent of 100 million Internet users, and internet use is still growing) as well as India, Russia, and Latin America. Internet use in Egypt, Nigeria, Indonesia, and similar populous countries remains very low, making them part of the next frontier. There may also be a market beyond internet users, with companies like DT and AT&T ready to use DSL to deliver television whether or not the customer uses the internet.

Gibs predicts dialup "will hang on around the edges. … We're talking about an older population and a poorer population. There's always going to be a population who just uses the Internet to check e-mail." From an interview with Doug Tsuruoka of IBD via DSLR.

While the number of internet users limits the number of DSL connections, equipment makers might continue strongly as most of the existing DSLAMs are obsolete and due to be replaced. They were designed for "up to 6 Mbps" and modest traffic volumes. Today's gear is from 10 Mbpsto 100 Mbps, more reliable, lower power, and non-blocking to high levels of video traffic.

Especially where competition is strong, telcos have begun a replacement cycle for DSLAMs. That's essentially what's happening at Deutsche Telekom, AT&T, and Bell Canada, where the "new network" is really just a replacement of DSLAMs that are six year old designs, obsolete, and depreciated. I'm already seeing the replacement trend as chip sales are well above customer net additions.

Copyright 2006 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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—A.J. Leibling

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