DSL

DSL Prime Editorial:
The Need for Cheap Broadband

Foreign DSL providers are showing how cheap DSL can be profitable in volume. Cheap DSL is just what we need to jump start the U.S. economy.

by Dave Burstein DSL Prime [September 21, 2001]

Editorial: Cheap broadband can be telecom's contribution
Almost everyone had the same response: how can I help? When it's time to think about restoring the economy, the telcos have a powerful tool: drop the price of DSL to the typical world level of $25 to $30, and sign up customers by the tens of millions. Remote learning, telecommuting, and telemedicine can reduce social costs; new industries including personally targeted video can flourish. The networks and technology are ready, after a rocky start; now we need vision.

We will not resolve the issues of war and peace by delivering broadband, and I wouldn't exagerate its importance. But it's a darned good way to advance the economy, an opportunity that can be seized almost immediately by a handful of corporate leaders who can earn a generous profit as well as the kind of public respect the telcos have been rapidly losing.

Low price, high volume is the better solution
There are two potentially profitable equilibria for a telco DSL deployment, with a sharp discontinuity between them. The U.S. pricing now averages $50; Canada, Germany, and Japan are at $22-32. SBC in February made the switch to high prices, low volume when they raised their prices from $40-50. The data that informed that decision were already out-of-date. DSL Hell operational problems were finally coming under control, with customer self-install marking a turning point. CEO Whitacre reported a 25-35 percent cost reduction in the first quarter of 2001. Equipment prices continue to plummet, as we report above, down 40-60 percent in the last year to a real cost of less than $300 per subscriber for the full network. Whitacre has already announced the prices will come back down, but no date or details.

Low prices, high volume was the original plan of Verizon, SBC, Bell Canada, Deutsche Telekom, Korea Telecom, Chunghwa and Hanaro. All but the U.S. are well on their way, with prices between $22 and $32. Korea, a tenth our population, passed the U.S. in DSL subs this summer, despite a market a tenth our size. Canada has twice the penetration, and Japan and Germany are now moving so fast they will also have twice the U.S. rate by mid-2002, despite starting two years later.

Telco chiefs agree
In principal if not in practice, the telco decisionmakers are clear about how important broandband is to their future. In 1999, Larry Babbio, Verizon President, saw the the company's future the same way. "We will be at the very core of the Internet economy, as we extend digital, high-speed capabilities to the consumer market. ... Local broadband will fuel volume and revenue growth for many years to come." Ed Whitacre of SBC announced DSL would be near-ubiquitous "the etone of the future."

Good business and true public service
Telcos a generation ago learned their own growth was closely tied to the economic health of their commmunities, and have led development efforts. The best of them continue the public spirit. Babbio told students at his alma mater "key to our success is our desire and willingness to give back—to return to our roots and replenish the soil." SBC has just donated $1M to the 9-11 fund, and Whitacre wrote "Like all Americans, we've been deeply touched by how our nation has responded to this tragedy and all of us at SBC are proud to help in any way."

Babbio "We've just shown what we can do"
I asked Larry Babbio whether Verizon would consider a broadband jumpstart. "That's not the kind of question many are asking right now, we've got other priorities this week," was the direct answer. With a smile he added, "But we proved this week just what we can do. If government gets out of our way, just watch us."

Talking afterwards, I disagreed with Babbio, because I think Mike Powell's FCC will shoot down any real obstacles, so long as competition gets a fair deal. Babbio's comment to us was similar to what Verizon's Tauke told Telephony Magazine, that the key D.C. issue is the details of TELRIC pricing to competitors. That's much narrower than the bills current in D.C., hence far likelier to reach a practical compromise.

Give downtown Manhattan the best system in the world
Verizon's doing a remarkable job, virtually recreating a network in days. Restoring the city's economy will take more, however. The city should ensure the rebuilt streets have 21st century networks installed, with fiber and copper for future needs available to all. I hope the fiber folks (Marconi, Alcatel, and others) are working hard on proposals to show fiber is practical, today. DSL folks will hopefully come together with the "intelligent copper" alternative, the spectrum managed lines with far greater capacity.

A top researcher writes us "intelligent copper" has the potential to match a fiber build "The actual fundamental limit with full coordination at 500 meters is symmetric 200 Mbps. In a 50-pair binder, that is 10 Gpbs, more than HFC or even PONs (FTTH) will provide over the same number of users." The city, state, Verizon, and competitors should get together now to plan the build.

767 plane represents a kiloton
Physicist Herb Lin calculates the energy (fuel + kinetic energy) on board a fully loaded 767 moving at 400 mph is on the order of a 1,000 tons of TNT, which is the yield of a typical tactical nuke. That is the scale of attack that NYC suffered.

Copyright 2001 Dave Burstein. We are journalists, not investment advisers; invest at your own risk and do further research.
The DSL Prime Newsletter is reprinted with permission.

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