DSL

DSL Prime: DSL Business News

When British Telecom decided to change its pricing for DSL, it changed the fundamentals of the British broadband market. Elsewhere, technology will also drive down costs.

by Dave Burstein DSL Prime [February 28, 2002]

BT cuts wholesale price in half
$21.75 is a third lower than U.S. telcos
COO John Davies told me in October the price "must and will come down." We talked after his speech at the IEC London meeting, during which he outlined ambitious marketing plans. I predicted they would fail unless he lowered prices, which he promised would happen this year once self-install works.

By the end of the year, Germany had 2M subscribers and Britain only 100,000. The difference, of course, was price. Germany is charging $30 retail, the U.K. over $55. The new wholesale price will produce retail prices of $35 to $45. New CEO Ben Verwaayan is looking for a million subs next year, and 25 percent of all homes in 2006.

Germany's wholesale rate is generally $12, and DT says that will be profitable because of the volume. That may be a little low, disguising a subsidy to T-Online. Clearly, the U.S. telco wholesale rates of $30 to $35 are unsupportable and the primary cause of the slowdown. One article I hope to write is about regulating effectively, using comparative data as an independent check on telco claimed costs.

BT is only serving 60 percent of the country, and a small fraction of the central offices. While at one point there was talk of a government subsidy to expand coverage, Davies told me it would not be necessary. "The government should inspire demand, not provide subsidies," he told me. Ed Pinkham's research has found the smaller telcos in the U.S. are profitably installing DSLAMs in COs with under 2,000 customers; it pays off at a 10 percent take rate with today's lower DSLAM prices. BellSouth, DT, Belgacom, NTT and others are moving to serve nearly every office. SBC and Verizon planned to do so as well, before they slowed their plans for political reasons. BT is testing small DSLAMs from Asia that could be delivered at under 5,000 per local exchange, and Alcatel and Lucent are prepared to offer a small unit at a low price as well. DSL Prime urges BT to wire Scotland and the North, not just the largest cities. If regulations on shadow pricing inter- office fiber to small communities are a real problem, OFTEL should change them, fast.

The "little things" that helped at BT
Britain has a different phone system, that defeated standard microsplitters and delayed self-install. Excelsus came up with a special unit that solved the problem.

Operationally, ADSL problems were initially severe and made the British press. By late in the year, BT internal metrics on reliability were much better, giving them confidence they could quickly ramp to meet demand. A strong majority of install times are under five days, aided by line testing (Teradyne) that reduces the problem rate.

Experience around the world makes clear there's an inflection point with a dramatic improvement in efficiency and cost. Self-install, automated provisioning that works, and experienced support and repair teams are critical. Until that point, costs are high, service undependable, customers often angry and few. After that point, problems go down dramatically and with proper pricing and marketing the volume can take off.

G.shdsl coming next—with reach
BT has plans to offer symmetric service, and "Oftel will ensure that prices for these new services are set at a level that encourages competition between the different providers of broadband services," according to David Edmunds. Verizon is also talking about symmetric G., later this year. It can reach significantly longer distances. Offered to business, it will probably sell at a higher price. But G.shdsl does not cost providers significantly more than ADSL. DSL Prime believes it should be made available to consumers too far for ADSL.

Samsung beats Alcatel in Taiwan
How low did the bids go for a million lines?
E-mails with fantastic numbers are buzzing around, assuming Samsung won this one away from Alcatel with dramatic pricing. Last year, Chunghwa paid $170 total for DSLAM port and modem, and prices have gone down since, although I have not been able to confirm the $85 rumor. Chunghwa demands some of the best pricing in the world, because it has two active competitors. Alcatel went very low to beat Nokia last year, hoping to drive Nokia out of the DSLAM market. (They failed.) This cost them around the world, as major European customers became aware of the Taiwanese price. Chunghwa told the local papers they had negotiated "the lowest price in the world." With the Internet, news like that travels rapidly. In another context, I've been told by two providers half a world away from me in New York that information in DSL Prime gave them leverage with their vendors.

Cody Acree of Frost Securities wrote the first report I received in North America, wondering what how important newly merged GlobespanVirata would be as major Virata customer Ambit lost the modem contract. Comtrend, a small Taiwanese manufacturer, will be supplying the modems to Samsung. The contract appears larger than their sales last year, but of course there is no shortage of manufacturing capacity.

Samsung shipped 200,000 lines into mainland China last year, with Speed Velocity Time (SVT) in Shanghai a key customer. They have a goal of 30 percent of the Chinese broadband market, building on relationships established for mobile phones. They are also following Korea Telecom into Vietnam and possibly Japan.

Big win for analog devices
ADI is supplying both the CO and CPE chips, a $40M or so sale. They long were a strong number two to Alcatel in DSL chips, perhaps less visible than the standalone DSL chip companies. They've been selling heavily in Korea for several years, and worked closely with the equipment vendors. In a contract this large, the chip price is always a very low "special bid", although ADI says they will have positive margins on the chip sales.

Lucent, Copper Mountain upgrade DSLAMs
Lucent: 72 ports on a card for better density, less power
Bruce Miller believes the lower cost of Gig-E connections will drive down operating expenses, opening new markets for Lucent. The increased density comes from the new Centillium chipset (reported by DSL Prime on January 9), and is supported by a fast backplane ready for video. Alcatel and Lucent are constantly playing leapfrog, every few months announcing features that designed to out-pace the other. Both now are working hard at including

Copper Mountain Vantage in ILEC tests
Copper Mountain's VantEdge, their new concentrator that adds high-performance IP processing to the DSLAM, is now in trials with a telco. It's designed to manage a large CO, subtending existing Alcatel DSLAMs and replacing most of the Redback subscriber management functions. Lucent and Alcatel are now racing to add intelligence and IP capabilities to the DSLAM, a move long championed by Cisco and Copper Mountain.

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

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