Contradictions Amid DSL Deals

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Is Verizon Communications' $800 million investment in Northpoint Communications a ploy to maneuver its digital subscriber line businesses around regulatory roadblocks, or merely salvation for the foundering digital-subscriber-line provider?

Are the ongoing fumbles by telcos and independent DSL companies generated by explosive demand, or is DSL merely encountering the same growing pains that plagued the cable modem rollout two years earlier?

And most perplexing, despite the ongoing complaints about clumsy and laggard DSL installation, why does Cahners In-Stat Group, a high-tech market research firm (owned by the publisher of Multichannel News), envision such a rosy future for telco-run DSL systems?

These mixed signals-accompanied by a slew of recent deals-raise even more questions about the prospects for DSL in a competitive environment that's soon to become even more challenging, as wireless and satellite broadband providers join the fray.

There's no question that DSL installations are exploding. Even awkward SBC Communications Inc.-with its "Project Pronto" initiative-adds 4,000 residential DSL users per day, many of them through the self-provisioning option.

Although the actual number of U.S. DSL homes is debatable, the general consensus puts it between 500,000 and 700,000-up about 50 percent in just the past three months.

That pales in comparison to the 2.8 million cable-modem users (which grew 21 percent during the latest calendar quarter). However, the speed of DSL's expansion suggests the customer base for each service could be about equal in less than two years.

That's in a frictionless environment, with all high-speed providers on an equal footing.

But the DSL start-ups are stumbling, as evidenced by Verizon's bailout of Northpoint. Other high-profile DSL entrepreneurs, such as Covad Communications Inc. and Rhythms NetConnections Inc., are also seeking allies, and the former Bell companies seem poised to become saviors.

SBC recently bought a stake in Network Access Solutions, a regional DSL provider in the Northeast corridor home turf of Verizon (the telco formerly known as Bell Atlantic, or "TTFKABA" as we call it).

Whether telcos or independent providers are doing the work, however, there have been endless consumer complaints about DSL service-or "DS-Hell," as one telecommunications publication recently portrayed it.

An alleged citizen's watchdog group called "ConsumersVoice" published a 400-page report that chronicled consumer complaints about telco DSL service. The Bell companies, in response, charged that ConsumersVoice is a front group for AT & T Corp. and other competitive local-exchange carriers.

ConsumersVoice acknowledges that AT & T has provided it with funding. AT & T, which has a separate DSL agenda, is pursuing other broadband interests, i.e. its cable and Excite@Home Inc. businesses.

But that squabble merely draws attention away from the core issue: can DSL-particularly telco-backed operations-really grab a 50-percent share of the residential DSL market in the next few years? The In-Stat study is confident that it can.

While acknowledging the Bells "are not 'home free' by any means," the report concludes "CLECs will not have enough leverage to dominate" the DSL business because they "do not own the network, nor do they own the customer."

By several measures, SBC has become the toughest telco to deal with-from both the standpoint of both residential customers and CLEC resellers. Yet SBC's DSL customer base of 300,000 (some of it in small-business locations) accounts for about half the technology's current base.

The Verizon/Northpoint alliance represents fewer than 250,000 other residential users. Taken together, those numbers underscore the poor penetration of all the independent data LECs (DLECs) collectively.

Actually some analyses now suggest that only about 40 percent of U.S. homes are within reach of today's DSL technology.

Statistics aside, the residential broadband battle is just getting started. The recent deals are reminders that the DSL gang will be a shifting target-if not a downright shifty one-as they head into the coming growth spurt.

I-way Patrol columnist Gary Arlen gets his statistics the old-fashioned way: he makes them up.

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