AT&T Ramps Up Telephony As VODSL Stumbles

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AT&T Corp. has met its performance standards for
delivering local cable-based telephony at a moment when competitors are finding that the
widely anticipated voice-over-digital-subscriber-line platform is taking longer to pass
muster.

The telecommunications giant has given the green light to
mass deployment of the proprietary constant-bit-rate system supplied by Arris Interactive
LLC in eight major metropolitan regions, allowing it to move from its current customer
base of 20,000-plus in 16 cities to what it hopes will top 400,000 by year's end.

"Our agreement to use Arris'
'Cornerstone' products will help us to scale our telephony offers to hundreds of
thousands of customers this year and to millions next year," said Curt Hockemeier,
executive vice president and chief operating officer of telephony operations at AT&T
Broadband & Internet Services.

Things haven't gone so smoothly on the DSL side of the
competitive divide. Commercial launches of multiline packet voice along with high-speed
data over DSL-equipped telephone lines are being held back at least by a few months,
depending on how quickly vendors can solve problems that have cropped up during an
intensive round of initial testing by competitive and incumbent carriers.

"The trials have unearthed some issues that will push
deployments back to the second half, probably starting this summer," said Claudia
Bacco, director of DSL consulting at TeleChoice Inc.

So far, carriers that had been expected to proceed with
aggressive launches have had little to say.

Sprint Corp., for example, has plans to push ahead into
many markets with DSL-based delivery of its ION (Integrated On-Demand Network) services.
But it has yet to signal that it is ready to proceed. "There's not a whole lot
we can say about it yet," spokeswoman Jennifer Briskoe said.

NorthPoint Communications Inc., one of the leading carrier
proponents of voice-over-DSL, is still in the technology test phase, as well, exploring a
number of vendor platforms, spokeswoman Susan Dorne said.

"We're moving toward market trials at a limited
number of COs [central offices] in the coming months, and we expect service to be
generally available commercially in selected markets beginning in the second half,"
she said.

Meanwhile, the Arris system has proven itself viable for
mass-scaling in 16 targeted cities in the metro areas of Chicago; San Francisco; Denver;
Dallas; Hartford, Conn.; Pittsburgh; Salt Lake City; and Seattle, AT&T spokesman Mark
Siegel said.

The company is offering combined local and long-distance
first-line service at a discount to incumbent telcos' local and long-distance access
prices, as well as up to three additional lines at an average price of $5 apiece, he
added.

"Tariffs vary from one market to another, but
we've found that users in Fremont are saving an average of 20 percent to 25 percent
from what they'd be paying for combined local and long-distance service from the
incumbent," Siegel said, referring to the California locale where the service first
launched.

The low cost of adding more lines has proven to be an
especially strong selling point for AT&T, even among people who hadn't intended
to get second lines, he added, noting that all installation charges, including first line,
are covered by the monthly rates.

One hurdle Arris had to clear involved demonstrating a
low-cost upgrade path to Internet-protocol telephony, where the Data Over Cable System
Interface Specification modems used for high-speed data can be used for voice, as well,
resulting in lower gear costs.

"This new generation of Cornerstone products will help
us to elegantly and cost-effectively migrate to full IP-telephony solutions,"
AT&T Broadband chief technology officer Tony Werner said, adding that the company
expects to begin testing the IP version of the system after it becomes available later
this year.

AT&T officials have been talking up plans for mass
launch of cable telephony for some time. But it took a while for the final green light to
go on publicly, given the extraordinary complexities involved in making voice services
work cost-effectively over cable.

AT&T began offering packet-voice services commercially
over the current-generation platform supplied by Arris, a joint venture of Nortel Networks
and Antec Corp., in Fremont last year, confronting a variety of premises- and
network-induced challenges to streamlining the installation process. The company is now
confident that it can meet its cost targets, officials said.

AT&T has already equipped headends to deliver the
equivalent of 300,000 to 400,000 lines in the 16 markets Arris is supplying, said Dan
Middleton, vice president for cable-media solutions at Nortel. "We're
accelerating our deployments now, including a lot more cities beyond the first 16,"
he added, noting that voice revenues from each new customer are contributing $70 to $80
per month toward ongoing capital costs.

The advantage AT&T and other cable companies enjoy for
packet-based voice stems from the fact that despite promising early tests of
voice-over-DSL last year, the field testing that followed turned up unforeseen problems
with system interfaces. They included a failure to support one of the two widely deployed
central-office switching platforms.

"Vendors have focused on interfacing with the
'GR-303' system [the telephone-industry standard for digital-loop-carrier links
to the central office], but many carriers want to be able to work with multiple switching
types," Bacco said.

Some carriers appear to be concerned over scaling issues,
as well, she added.

Another issue -- which also troubled the cable industry at
first -- concerns powering for DSL-based voice.

While in a system like G.Lite, the consumer ADSL
(asymmetrical DSL) standard, power comes in over the POTS (plain old telephone service)
connection that is part of the service architecture, pure DSL lines deployed by
competitive local-exchange carriers are unprovisioned lines, meaning that they don't
carry POTS, which leaves the power question unresolved.

"In the residential market, there will be power,
because POTS is offered over the ADSL systems," said Muni Perzov, voice-over-DSL
product manager for Copper Mountain Networks Inc., a leading supplier of DSL platforms.

But many CLECs are targeting the consumer market, putting
them at a disadvantage against incumbents that are also experimenting with adding
voice-over-DSL capabilities with their DSL offerings on existing POTS lines.

On the business side, vendors are assuming that the ISDN
(integrated services digital network) backup lines many businesses use with T-1 lines will
stay in place when customers move from T-1 to the cheaper DSL, Perzov said.

And companies that don't have ISDN probably have key
or PBX (private-branch exchange) systems that depend on battery backup to protect against
power outages, so they should be content with using batteries for protecting the DSL
customer-premises equipment, as well, he added.

As analysts noted, none of this is to say that AT&T and
the rest of the cable industry will long have the packetized multiline-voice market to
itself, given the overall performance quality that has been registered on the DSL side.

Once the remaining bugs are worked out, incumbent telcos
will be especially well positioned with their existing POTS lines to launch competitively
priced multiline service, which SBC Communications Inc. already announced intentions to
do.

But the added time-to-market advantage is a big boost for
cable. Even if voice over DSL hits The Strategis Group's projected customer level of
250,000 by the end of the year, its market base will still be behind cable's, which
is already above that level.

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