DSL

DSL Prime News Briefs

Briefs

• Where will the future demand come from? The mantra remains "we have more orders than we can handle", and the installation delays would seem to confirm that. SBC, Verizon and most CLECs still take over a month for most installs, compared to a telco (and cable industry) standard of 3 days, suggesting a backlog. But we believe that overall installation capacity has caught up with demand, with SBC, as we will report next issue, with the capacity to handle 500,000 more orders than they desire in 2001. Similarly, looking closely at order backlogs at CLECs Covad and Rhythms, install backlogs are stable to down. The easy early adapters have been reached in the major cities; we're now in the "post-DSLAM" era, needing DLCs and loop extension to expand the market, and service quality that will inspire customers to want DSL.
• Andrew Odlyzko of AT&T has convinced us we were wrong in our forecasts of bandwidth demand, a key determinant of the equipment you need to purchase today. He's found substantial data that suggest the widely quoted "doubling every 120 days" growth of the internet is overstated by half or more. That's what we've been hearing reflected in network demand within DSL as well. Even doubling over a year will make typical DSLAMs installed in 2000 obsolete in 4-5 years, but that's better than the 2-3 years we have been projecting. Odlyzko is speaking at the IGI conference Fiber Bandwidth Glut: Fact or Fiction April 18-19, 2001 in Boston
• 540,000 DSL customers was the first highlight of Verizon quarterly financials, 30% below their spring goal but ahead of the 500K they expected in the fall.
• Motorola is splitting its broadband division (the old General Instrument) into two parts, entertainment and networking. Their Streamaster set top is already in use in the Enron/Verizon trials, and they intend to offer DSL versions of the gateways and intelligent home controllers they are selling to cable
• Fiber in the sewer, anyone? Citynet's robots are now at work in Albuquerque, deploying cable.

Deals

• NHC won a large order for equipment from BellSouth. Like most telco deals, this was a long time in the works, but the potential volume is significant. With 5 North American telcos representing about 80% of the market for DSL equipment, each decision is crucial.
• BroadJump signed SBC, and is close to dominating the market for broadband installation software, with several cable providers on board as well.
• Alcatel will OEM basement DSLAM equipment from RC Networks, which has produced equipment that works well in the field and is priced far below the market. They have $3,000 units that make ideal building starters, while the more exciting products, just coming to market, include voice.
• Virtual Access has won orders from BT and BellSouth for routers, and is optimistic in other telcos. A simple to use test mode, with a graphical user interface, helps end-users and providers determine where the problem is—local machine, local connection, DSLAM, etc. Pete Castleton of Verizon told us last month that the ability to test is proving critical to network reliability, and is a key factor in their equipment decisions.

Products

• DVTel announced a new Video over DSL system, using chips from Infineon.

Chips

• TI has been especially aggressive in pricing, competitors claim, but while DSL is strategic to them, the dollar volume is probably not material to their earnings. DSLAM manufacturers (except Alcatel and Siemens) have all dropped their forecasts for 2001—that's lower growth, not an absolute downturn.
• LSI Logic introduced an 8 port analog front end chip, with good numbers for noise and power.
• Tripath cut a deal for Alcatel's support of their low-powered line driver, one of the first of a new generation that will raise DSLAM port density.
• Legerity (the AMD spinoff) "opened the kimono" at ISSSC with technical details on their high voltage chips that eliminate splitters and combine voice and data.
• Analog Devices, on the other hand, is working to eliminate the line driver entirely, combining it with the analog front end.

International

• "There is no consumer choice for DSL in the UK", Kingston said as they deferred their service till at least next year, blaming BT. All the CLECs are looking at business. CLEC Thus, even with the backing of Scottish Power, has had to abandon DSL plans.
• KPNQwest's Jerry Yohananov emailed that DSL "is not a big part of our future strategy". They've cut back from 1600 to 300 planned COs.

Competition

• Half the companies at Cannes 3GSM conference will be out of business in a year, predicted VC Olav Ostin. Highspeed wireless handsets and customers will be very rare until much later than predicted.

People

• Maida Chicon now directs Verizon's multicultural marketing organization, the kind of outreach lesser firms will need to develop as the surge of "early enthusiasm" passes.
• Harold Furchgott-Roth, the FCC commissioner without a television set, has resigned, because "every free-market advocate in government must fulfill his dream of returning to the private sector." Bush now gets to name his replacement, as well as Bill Kennard's.
• Kelvin Ko is the new Asia director for Videotele.com, the Tektronix video server spinoff, which has promised dramatic breakthrus in price/performance for video headends. DSL is barely visible in China, but Videotele's three offices presumably are calling on many prospects. Video growth is slower than expected, because the big telcos are scared of the investment required, after massive losses six years ago. But as costs keep coming down, (and DSL Internet traffic pays much of the infrastructure cost), the economic argument keeps getting better. We think the time is now, although many disagree; we are certain the economics will become overwhelming within a few years, which means every DSLAM or DLC purchased today without sufficient growth capability will prove a mistake over time. There's less than a 7% difference in cost between video-capable DSLAMs and obsolete ones; in the case of the Alcatel 7300, the new model is cheaper, per port, than the old one, but has 10 times the potential capacity.

Stock Market

• Netopia's takeover by Proxim illustrated the downside of having cash—cash makes you very attractive to a buyer offering stock. But "fully funded until breakeven" is the mantra of today's successful net company. That's one reason Wall Street is abandoning Amazon; their cash runs out late this year, with no profit in sight.
• Lucent's downgrade to near junk bond status is a frightening reminder of how fragile the Internet and telecom boom really was. The DSL division continues to do well, with growth expected in 2001. The SEC investigation is surprising, but is another warning audited statements are not always accurate, especially as things change. Management hoped that DSL, like optical, would be spared layoffs, but the corporate problems are now so severe nothing can be guaranteed.
• Several analysts asked us about the impact of rapidly falling DSL chip prices on stock prices, which we are reluctant to forecast. Virata seems the least effected, as they emphasize features beyond the standard, but no one else is likely to be immune from an earnings hit, especially in Q2. (Since many chips are sold under contract, spot prices don't always have an immediate effect.) But ADI, Aware, and others have already seen severe stock drops, so don't read this as a sell recommendation, please. (In fact, since we wrote this several DSL chip companies have seen their stock rise.)

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

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