DSL Prime Newsletter

DSL Prime Broadband Achievement Awards go to SBC, Covad, Vitts, Net to Net, Tom Starr, Joe Zell, and others. Also, bundles are coming, @Link rolls out 1,000 COs, and much more.

by Dave Burstein
DSL Prime

We're headed to DSLcon in San Jose next week, with a special issue coming for Monday with announcements and a guide to the show. (Get them to us by Friday night, please) We'll be hosting a dutch treat dinner Tuesday night, close to Accesslan's great party at the San Jose Tech Museum. (email for location)

But first, we wanted to stop and recognize some key achievements in the year since we announced DSL Prime, with the awards below. Our opinions may spark debate—send your letters to editor@dslprime.com.

First quarter figures are trickling in, and US subscribers should easily surpass 800,000 and look for higher. SBC is growing at 3—4,000 per day, BellSouth doubled twice, Bell Atlantic similar, the big CLECs are taking orders as fast as they can deliver, and the smaller companies are moving from deployment to customers.

We're growing ourselves: VoDSL News is on track for a late April launch, and both DSL Chip news and VDSL news for May. All free, starting as monthlies. Over the Wires is another direction, bringing some of the wonderful people creating content with the folks delivering it on the net.

Voice over DSL
Recreating the 39 steps (or more) to provision a phone line
That's Tom Giuffreda's guess, after his Phoenix presentation covering real world phone systems. So it's no wonder the trials are dragging on, now more than 50 worldwide. Four providers involved told us problems were minor and solvable, but few expected broad rollouts even to business customers till later this year. A poll of the audience thought residential service was more than a year away, but we noticed one hand for "early next year" from the largest telco.

ShareGate's Dennis Bagchi introduced a new residential gateway, using the same wire for HomePNA and inexpensive telephony. David Benini of Aware introduced their new software for DSL enabled voice, another approach that avoids home networking cost if you just want to add extra phone lines, soon to be implemented in chips — probably a lot of them. Kevin Walsh of Accelerated got a remarkable response to his advocacy of SVC's as a means to deliver voice — one attendee's evaluation was a six on a scale of one to five.

Broadband Achievement Awards
We hope to call the awards the Shannons, after the legendary Bell Labs engineer who virtually defined communications theory, but need to get permission first.

Telco: SBC—promising universal broadband service and reliable speeds
With over 300,000 subscribers in Q1 2000, SBC has the largest DSL deployment in the world, and Ed Whitacre is confident of topping their goal of 1M yearend. But the award was earned by two promises made at the Project Pronto rollout. They will deliver broadband to essentially 100% of customers, going beyond Pronto with wireless, satellite, or whatever is needed. This will make SBC's one—third of the United States the largest territory completely covered by broadband. Both Congress and the FCC set this as a national goal; it's amazing Bell Atlantic & US West haven't made similar commitments with mergers pending. Fred Chang added a second commitment, also so far unmatched: SBC is designing their network to actually deliver the speeds promised, whether 1.5M or 7M. That requires a $1.5B investment in the ATM backbone — but will protect SBC from the charges of false advertising that are plaguing the cable companies and those DSL companies that can't deliver.

Competitor: Covad—first for consumers
NorthPoint, Rhythms, and Covad have all done a remarkable job deploying DSL nationwide, passing 20M homes and offices, and each plans to wire almost half the US in 2000. NorthPoint demonstrated leadership with a broadband initiative, and the VersaPoint plan to wire Europe at a remarkable rate (the others are coming). But Covad jumped into the US lead by signing up twice as many customers, including consumers since the summer, and the others are still in catch—up mode.

Leader: Joe Zell—US West has the most advanced service
US West is by far the most innovative of the telcos, already offering Video on demand (Intertainer), a non-PC gateway (Liberate), a less-expensive service, and dozens of features still unmatched by peers. But the jewel is Phoenix — 25,000 customers served by fiber and VDSL, no longer a trial but instead a model of the comprehensive service possible. We put SBC ahead as a company for universal service, but honor Zell to recognize US West. Joe Zell has flourished in a system led by Sol Trujillo, whose commitment to diversity found many natural leaders, Bob Knowling, Liz Fetter, and Catherine Hapka among them.

Innovation: 2Wire & Telocity for residential gateways
Forget modems — wire the home for multiple phone lines, shared computers, digital television, and more to come. These pioneers are close to market, pointing the way to the home of the future. A crowd is about to follow, but 2Wire's customer focus and Telocity's imagination (hiring Jef Raskin, the Mac designer, and partnering with NBC) give them a lead.

Smaller companies: Vitts, for wiring all of Vermont, and Net to Net, whose inexpensive DSLAMs made that possible
While telcos are thundering in Washington about the incentives they require, Chad Oliver has quietly installed DSLAMs in every CO in Vermont, with most of New York and New England on the way. Cageless co-location, a major FCC ruling, saves $50K or more per installation. Cost-effective equipment plays a role (Net to Net is earning a reputation for reliability while pricing under $15K). But simply running a business efficiently will be critical as competition heats up.

Unsung heroes: Turnstone, testing for quality, and Tom Starr, standards
One of the inventors of the DSLAM told us that leaving out testing was a great mistake, but Turnstone's Copper CrossConnect solves that problem, and has become a standard. Installation problems remain the Achilles heel of DSL, but the with improved software and better equipment, the industry can beat the rap. Integrated test equipment will also help minimize the problem of interference, one of the keys goals of the standards committees. Tom Starr, chair of the T1E1.4 group, is but one of the hundreds of volunteers who quietly are developing the standards for compatibility and interoperability without which the industry cannot exist; we honor him to represent all those who have worked so hard.

Decision: Line sharing
Nothing since the 1996 act will to more to promote competition than the FCC's line-sharing rules, a remarkable and well-thought-out decision. Plenty of arguments can be made against them, but beyond the rhetoric and lawyer-speak, if you want competition, line-sharing is key. We respect the bells — and praise them above — and believe they will continue to dominate the market with a 60-80% share. But capitalism works best with competition, and this was a courageous move by Kennard and is now setting a precedent Europe is rightly copying. (Conversely, other FCC moves are less effective. In particular, the requirements for separate subsidiaries negotiating at arms length can be eviscerated by tariffs dedicated to a few large customers. DSL Prime calls them "AOL tariffs", for the biggest ISP, but they also protect the telco subs remarkably effectively.)

back to news:

@Link betting 1000 COs to claim mid-America
Nortel/Promatory financing $225M
Alex Good left Bell Atlantic for @Link, and intends to prove a smaller company can move faster than a giant. They've opened 100 COs already, and hope 100 more per month will give them first mover advantage in many regions. With $45M from Madison Dearborn and others, and equipment financing in hand, they are growing their own ATM backbone and installing DSLAMs optimized for quality of service. To provide VPNs for corporations and telecommuters, they intend deep coverage, as many as 80 COs in a major market. Their plans include both direct business and wholesale ISP sales, voice and comprehensive services, and nationwide expansion in the next phase. This deal was one of the key reasons Nortel bought Promatory. Scott Bell of Nortel told us Promatory opened the door, but the contract is for much more than DSLAMs.

Are you ready for bundles?
80 percent of the industry see them dominating
A straw poll in Phoenix found 80% believed most DSL will be sold as part of a bundle with voice within the year. DSL Prime is a little more skeptical, but clearly major players like AT&T, US West, and SBC plan to make a bundle their primary offering. Video, data, local & long distance voice add up to $125-150 in an affluent household, and research suggests consumers prefer one vendor and one bill. This gives enormous room for promotion — a second major player told me they were considering giving free DSL as a promotion. Our speech to the conference suggested that video was a necessary part of the bundle to compete with cable, and economically practical to deliver.

First Telecom next to German and British market
Nokia funding rapid CLEC growth
Number 2 only to Deutsche Telecom was their plan when they briefed me weeks ago, but it will be hard to match VersaPoint's 2000 COs. They've hired Rupert Baines, who played a prominent role at ADI in DSL, and Nokia has committed to funding the first few hundred colos. The German market is getting crowded — but France (April, in a surprise), Benelux, and Scandinavia are allowing competition, with the rest of the Common Market to follow.

Disney & AOL battling for access
Content counts, not the provider
Whether content can reach the consumer is the key battleground we've been reporting, and Disney has taken the fight to Washington, enlisting Billy Tauzin and the Wall Street Journal. Disney is afraid — rightly — that AOL & Roadrunner will make it difficult or expensive for others to deliver over the wires. The merger is threatened directly, and similar issues (of backbone peering, access, and free speech) are also being raised in the BA/GTE and MCI/Sprint merger negotiations. Tens of millions of dollars have been spent lobbying for provider access, but the real public policy issue is just being joined. DSL Prime believes the key freedom of speech issue for the next ten years will be access to the internet for delivery — and that unless something is done now, roadblocks and tollbooths will be erected by providers.

NorthPoint "Reaches" for master resellers
Zyan, Megapath, and @Work first to sign on
There are 6,000 ISPs in America, few of whom have either the national footprint or the backbone capacity to serve all their potential customers. So NorthPoint's "Reach" program allows selected partners to sign up resellers. After the smaller ISPs sign on, look for NorthPoint to reach out to affiliate and other marketing channels, just as Covad did with LaserLink. Zyan (which announced their 200th employee) and MegaPath are fast growing ISPs, selling on the basis of quality, and building a good reputation among customers. With the stock market valuing CLEC DSL customers at over $10,000 each, there's enormous incentive to build the base, and deals are emerging; a referral of a consumer DSL customer is worth hundreds, and a business customer even more.

Opportunities (a new section, as we see appropriate stories)
• Low-cost second, third and fourth telephone lines, coming into the house over DSL but distributed inexpensively, look like a breakthrough product. Gateways and HomePNA are great for some of us, but a much less expensive technology, similar in cost to a cordless phone ($10-$25, complete) is sufficient for much of the market—and the telcos want to buy it by the millions.
• Accelerated Networks is the first Voice over DSL company coming to market, and Telocity the first major gateway. Both are being offered by CSFB, and we'd invest in the IPO ourselves for either of them.

Briefs
• Redback's next generation will have ten times the processing power, Larry Blair told CNet.
• Telcordia Exchange Link scored a breakthrough contract with NorthPoint, and Telcordia hopes to become a major software provider linking CLECs, ILECs, and their customers.
• Accesslan's i-SLAM is a next generation access unit with important QoS and traffic shaping features we'll be writing more about.
• FreeDSL/Broadband Digital Group was the target of articles by Andrea Petersen in the WSJ and Michelle Finley in Wired. Our own report, based on their website policies and direct communications, is so strong we have held it back for a week to allow the company to comment before we publish.
• NAS's 10K revealed what they will do with their $150M from SBC & Telmex. They will expand in Bell Atlantic territory from a yearend 362 COs to over 500, then open 400 COs in Bell South and US West territory later this year. Their large direct sales team has only produced 2,900 subscribers, which may be why they are looking for indirect sales managers.
• Lucent is GeoVideo, a fiber network being developed with public TV stations and MFN, offers gigabit potential for video to business and eventually residences. A major announcement.
• DSL.net is moving nationally, opening Albuquerque, Colorado Springs, Omaha, Santa Fe, Salt Lake City and Tucson.
• Jump.net has signed 20K customers, expanding nationally from Texas. That puts them in the top ten DSL ISPs. Flashcom still presumably leads (they have 35K in process alone, a number growing every month), although Prodigy should be bigger when the SBC transfer completes. We cannot give more detailed rankings because most companies refuse to make their numbers public. Earthlink is coming on strong, and Phoenix, Zyan, MegaPath and others are larger than many realize.
• Metalink's new US headquarters is at 105 Lake Forest Way, Suite C, Folsom, CA 95630, Tel: 916-355-580

Chips
• DataPath has combined the analog front end and the line driver, allowing them to offer, they claim, both reduced cost and board space.
• Globespan's new Titanium PCI chipset is actually small enough to fit on a PC card, not just a PCI board.

Around the world
• Bell Canada promised to invest $1.5B upgrading digital systems, including 800 strand optical fiber nets in major cities. Five million Canadians (70% of the market) can order DSL by yearend — 85% by 2002. No surprise their plans echo Project Pronto — they're 20% owned by SBC.
• Dishnet, in Madras, India, received investments from Century Tel, HSBC, and Covad, who has promised to lend OSS support. Well conceived software systems are a strategic asset in building worldwide partnerships — most emerging international CLECs seek a back office as part of the deal.
• Telecom Italia is eliminating 13,000 jobs, and Eirecom also has layoffs.
• Tele Centro Sul, backed by Telecom Italia, is installing 10K lines of Lucent equipment in Brasilia.

Deals
• Efficient used its $8B market cap to expand its product line, buying security vendor NetScreen for $850M in stock. Chief Executive Robert Thomas will become president and COO of the combined companies.
• 3Com will distribute Copper Mountain DSLAMs, which has been a very successful business for Lucent. But Lucent has Stingers to sell, even if some customers prefer CM equipment, so an additional channel makes sense. More CM news coming.
• mPhase will get TV channels from the AlphaStar satellite. They are ready to go into video trials.
• Ramp joined Paradyne's "HotWire Connected" program, working together as ADSL builds a primary position. The new 600i router uses the Alcatel chipset for compatibility and supports PPPoE.
• Westell put out a press release about extending their European deal with Fujitsu, but named no new customers to add to British Telecom.
• Darwin ordered $5M of basement DSLAMs from Interspeed.
• Ben Lomand, with 35,000 telephone subscribers in Tennessee, went with Pulsecom equipment.
• Zyzel won a contract for modems from Earthlink, as America's second largest ISP expands in DSL.

Stock Market
• Orckit purchased communications ASIC house Silicon Value, which will be spun off next quarter along with Orckit's chip division. Redback raised $500M in subordinated debt.
• Winstar sold $1.6B in debt, some of which will go to supporting a major US Government contract. Fixed wireless is clearly a factor in the market. But they had to pull back 20% of the offer, and pay 12.5% to 14.5%, higher than expected.
• Tut is selling $150M in stock through Lehman Bros.
• Metalink sold $63M of new common, matched by certain shareholders.
• PSI is spinning off its consumer business as inter.net. International in scope, it will be one of the world's largest ISPs.

People
• Joe Basile is the new CEO of OnSite Access, a major player in high-speed building services headed for an IPO. He ankled GST, and previously was COO of Cable & Wireless.
• Trivergent, building 300 colos in the Southeast, named Harold Bufford VP Network/switch, Craig Staley VP/Treasurer; and Timothy McKee Senior Director of Internet Operations
• Shannon Pleasant ankled Cahners-InStat for General Bandwidth, an emerging player in residential VoDSL.

Copyright 2000 Dave Burstein.

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