Added Services Are Key to DSL Success

After last year's bumpy start, DSL's growth in 2000 should be huge. Central to the evolving success formula will be the bundling of voice, application, and similar services.

by Jim Thompson

DSL is poised for a major break-through in the coming year. After a few bumps in 1999, DSL is shedding its Rodney Dangerfield image and is getting the respect it deserves. The technology not only has forward momentum, but has clearly demonstrated that it has legs.'

The ride wasn't entirely smooth last year for DSL. Complaints of delays in hooking up the service, confusing billing practices, technical support problems, federal regulations and reports of outages had some concerned about the future of the technology.

As we enter the year 2000, many of these problems will likely remain -- at least, in the short term. But most agree that DSL is leaving behind its initial growing pains and emerging as a solid, reliable technology that will help power the future of the Internet.

"The year 2000 will see a tremendous growth for DSL, primarily because product awareness is going to skyrocket," said Crosby Haffner, president of Zyan Communications, a Los Angeles-based ISP offering nationwide DSL services. "Product awareness of DSL by the public took a tremendous jump in 1999. With the rollout of G.lite this year, we expect to see DSL hit the consumer market hard for the first time," added Haffner.

In addition to the availability of G.lite, DSL is expected to capitalize on its momentum in the year 2000 with falling prices and greater availability. Better understanding of the potential of the technology by individuals and the business community will add further boost to the growth of DSL. Another push came from the RBOCs in 1999, when the nickel finally dropped and they wised up to the need for broadband access and began offering DSL services.

Residential DSL on the rise
So far, the big gain in DSL deployment has been in the business sector. "I think ISPs have been right on in targeting the small business market because the cost of getting to the unbundled loop has been high enough to keep the data CLECs away from the residential market," said George Peabody, an industry analyst with the Aberdeen Group. He added that the ILECs are getting into the DSL game more aggressively which is driving down the price for CLECs and "providing more traction for them to move into the residential market."

Haffner adds that the movement of large ISPs into the DSL market will further propel the entire market. "We expect AOL and other major ISPs who are currently providing dial-up to roll out DSL products. This will fuel the market by increasing product awareness," he said.

Among the challenges still remaining as we enter the new millennium is the issue of how ISPs can leverage current DSL offerings to produce more revenue. The problem that ISPs face is that home users want broadband access but at a price that is comparable to what they currently pay for dial-up. A company in California (Broadband Digital Group in Newport Beach) is even planning to offer free DSL service beginning in April, 2000.

New services to offset higher costs
Providing more services may be the only way to solve the problem of moving dial-up users to high speed access without substantially increasing the price. In order to stay competitive, ISPs must explore the possibility of offering - along with DSL connectivity -- new services that take advantage of it, such as streaming video and audio, interactive gaming, Voice service (VoDSL) and video-on-demand services. "Voice services, like VoDSL, will be among the first of the value-added services that will add to the revenues of ISPs," noted Haffner.

VoDSL (Voice over DSL) is expected to be a major revenue producer for ISPs. More than $46 billion is spent by small businesses on telephone services each year. What's most surprising is that only about ten percent of that $46 billion is spent on data services. ISPs and CLECs are hoping to tap into this lucrative voice market as VoDSL becomes available in markets across the country.

Already, major CLECs, including NorthPoint Communications, Covad Communications and Rhythms NetConnections have signed, or are working on, agreements with content providers and caching vendors for value-added services that will enhance the offerings of their high-speed networks.

One example of such a symbiotic relationship is the recent deal between Rhythms and Microsoft. The agreement calls for Rhythms to provide high-speed lines to Microsoft so they can offer DSL service to their customers while the two companies work together to distribute streaming media and other bandwidth intensive programming to broadband users. Rhythms has also joined the ASP Industry Consortium with an eye toward offering network services to ASPs.

Covad signed a deal with RealNetworks in December to provide streaming video and audio for DSL connections. A spokesman for Covad said other announcements relating to the providing of content are in the works and should be announced soon. NorthPoint has agreements with data hosting center, Equinix, and content providers iBeam Broadcasting and Broadcast.com.

ASP alliances
For ISPs—especially smaller ISPs—similar agreements and alliances may be the only way to keep profits up in an environment where the cost of broadband access is falling. One model that ISPs are looking at is the formation of alliances with ASPs (Application Service Providers). ASPs host software applications on servers and deliver the applications to customers via high-speed networks. It's a market that's growing steadily. The market research firm Dataquest predicts that the ASP industry will grow to $22.7 billion by 2003.

"The ASP is providing a reason to have higher bandwidth circuits, especially for the small business," said Peabody. "Some services from ASPs are really attractive. You get a lot of functionality and you have little or no up front cost and a reasonable monthly expense. That's an extremely attractive proposition for the small business."

Although he believes the ASP market will add to the revenue stream for ISPs offering DSL, Haffner does not see ASPs being a significant revenue producer over the next year. "We will see a tremendous proliferation of different ways to take advantage of the bandwidth created by DSL. That's going to include ASP services, but that's just the beginning of the ways to fill up the broadband pipes," he said.

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Related story: DSL: Rough Road to the Promised Land