DSL

DSL Prime News:
Can Competition Be Saved?

DSL Prime discusses the Technet announcement, examines competition in Europes, chooses the best DSLAM, and provides the DSL Prime News Briefs.

by Dave Burstein DSL Prime [January 25, 2002]

"The President should set a goal of making an affordable 100 megabit per second to 100 million homes by 2010" said Technet's CEO committee.

Ivan, Ed, Duane—you own the lines. Will you give John Chambers what Cisco and the U.S. economy needs? George Bush is listening, and may say something in the State of the Union Address.

16,000 a day in Germany
2 million subscribers bring DT to takeoff
Christopher Bland of British Telecom is feeling the heat from the remarkable results in Germany. He may have a Prime Minister talking about "Broadband Britain", but he hasn't delivered while the Germans have. There's no secret to the German success. They priced competitively (30 Euros) and deployed widely (90 percent of the country is close at hand). Operationally, they made sure everything worked well, which means they can project an operating profit from DSL within two years.

The result is subscribers growing at more than twice the rate of SBC or Verizon, who serve a comparable territory and had a two year head start. The Koreans continue to lead the world, but Germany and Japan are proving Korea is a model, not an exception. DT now will rapidly launch video, gaming, and other value add services. It's an extraordinary accomplishment, which will now be matched by other German companies creating innovative Internet applications.

Can competition be saved?
DT has more than 98 percent market share, making Mathias Kurth's job of promoting competition almost impossible. The results of the monopoly are already clear: DT has just raised their price for DSL by about 10 percent, typically from 30 Euros to 33. DSL Prime's previous reporting on DT had an error of fact and probably one of analysis as well. The most common fee for the DSL line connection has been in combination with ISDN for about 10 euro, which is in fact difficult to justify on costs. (Most German Internet users already have ISDN connections. The higher fee I previously reported was for analog phones.)

80 percent or so of customers also buy ISP service from DT's subsidiary, T-Online, at a combined price of 30 euro. This pricing was a means of moving profit from DT itself to T-Online before the projected T-Online IPO. Even with a zero charge for line-sharing, that was at or below cost and impossible to compete with. The overall price of 30 Euros is right on target, but allocating only 10 Euros to the connectivity effectively prohibits QSC and others from providing crucial facilities based alternatives.

DT has postponed line-sharing, crippling residential alternatives and angering RegTP. Now, with 2M customers connected, they have an advantage that will take dramatic regulatory actions to counteract. DT now has such a commanding presence they were able to raise prices, which of course should be the worst result Mathias Kurth could want.

Instead, he should seek to bring down consumer costs by reducing CLEC costs, and far beyond the usual range of likely prices. Christof Sommerberg of QSC writes the changes that would help his company are low line tariffs, efficient electronic access to OSS, low connection charges, inexpensive leased lines to the CO, and low collocation charges. If RegTP doesn't want a permanent monopoly, fast and strong action is needed.

Chambers, Benhamou, Intel want 100 meg to every home
Refuse to back Tauzin-Dingell despite pressure
"Broadband should be a national imperative for this country in the 21st Century, just like putting a man on the moon was an imperative in the last century," said John Chambers of Cisco. ADSL and cable modems aren't fast enough for America's future, a dozen of America's smartest CEOs announced through Technet. We need ubiquitous broadband, fast enough for multiple video streams, to allow telemedicine, work at home, granny cams, unlimited music, and everything else the Internet can deliver. The companies spoke up because their own sales require breaking down obstacles to Internet speed. This will require fiber to the home or the curb, and an investment of about $10B a year for a decade to dig up the streets. A lot of money, but a pittance compared to the economic benefits, making it smart public policy. At Supernet, FCC Commissioner Kevin Martin has already jumped on the bandwagon. 'The FCC in the past viewed broadband in a way that is too slow."

"A battle of the past" the country's top CEOs called Tauzin-Dingell. "It's hard to find any significant impact it would have on the grow-out of technology." Key telco CEOs have personally lobbied committee members, and SBC and Verizon are among Cisco's largest customers. But they would go no further than speak generally against regulations. The committee included John Chambers of Cisco, John Doerr, Eric Benhamou of 3Com, John Young of Hewlett Packard, Les Vadasz of Intel, Microsoft COO Bob Herbold, and others. Martin's comment puts him strongly against Tauzin-Dingell, although he wouldn't say so directly, because T-D defines broadband as "usually more than 375K" in one direction, far less than the video speeds Martin is speaking about. "The Third Internet is fast enough to watch—and it's ready to deliver," I've been shouting for years, essentially the same message. Perhaps these CEOs, and the engineers like David Reed of the recent NRC report, will get the word out more effectively than I have.

Independents lagging, Covad flat
Competence alone not enough to beat telcos
"How much is the industry down lately" asked a top East Coast ISP. Not at all, I replied, and the next day Verizon reported doubling their DSL installs. Verizon also is running ads for business DSL. As the telcos solve their operational problems, they lose fewer customers to the competition. Covad's numbers (virtually no net adds for the quarter) confirm that trend. Their financials are improving, with a burn rate down to $20M/month and $290M in cash on hand.

DSL Prime has chosen Chuck McMinn as "Man of the Year" for bringing Covad through the bankruptcy process and giving them a great chance to recover. Their operation continues the most efficient in the U.S., and now they no longer have to contend with their customer's fear of dealing with a bankrupt firm. But the bells have improved as well, so all independents will need new ideas.

Sprint: 8 megs for the price of 1
No speed limit on $169 business service
David Palen has 2,000 COs of Lucent Stingers that need to bring in revenue, fast. They were installed for the now cancelled ION project—voice and data for business and residences. Now, they are the base of a remarkable network dedicated to business DSL, which was just relaunched across the country with attractive pricing. Perhaps half those COs are being lit, a network comparable to Worldcom but smaller than Covad.

While some businesses do require more than 512K upstream, using ADSL offers considerable cost savings. Covad's price for 384K upstream is $199 per month, with a much slower downstream than Sprint.

(Covad offers more of an SLA, however—Sprint's is essentially meaningless, refunding $6-18 if you report a total outage. Covad's service, while not perfect, has been the best in the business. Covad's now in the position of being the company to beat.)

Of course, the actual speeds are limited by distance from the CO, line quality and download server speeds. But many customers will get multi-megabit speeds, particularly in business districts close to the COs. In large telco volumes, the cost of the added bandwidth for business customers is between $5 and $20/month, depending on the assumptions of traffic and over-subscription ratios. That's very attractive, if the improved speed brings you a business customer worth $500 or more. Giving 8 meg to consumers is much cheaper, between $2 and $7 per month, because over-subscription can be much higher. Medium or small ISPs with lower volume face much higher costs, probably double. Sprint, AT&T, Qwest & MCI already have backbone in place, so their real costs are probably lower.

Business DSL may prove competitive after all, even if consumer competition has failed.

Copyright 2001 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

"The power of the printing press belongs solely to those who own the presses"
—A.J. Leibling

The Internet is the cheapest printing press ever invented.

<Back to page 1: DSL Prime News
Go to page 3: >DSL Prime News Briefs