U S West Planning DSL Marketing Push

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U S West is escalating its digital-subscriber-line-service
marketing, cutting pricing and trying to boost availability as it races to catch its
cable-modem rivals.

The moves come just as the Englewood, Colo.-based Baby Bell
is making an even more daring strategic play: a proposed $37 billion merger with
Bermuda-based fiber optic network builder Global Crossing Ltd.

The Global Crossing deal would create a service provider
geared to offer broadband local and long-distance voice and data services both
domestically and internationally.

While that deal, announced last week, could accelerate
global deployment of services such as DSL in the long term, U S West for now is betting
that pent-up demand in its 14-state domestic region can be unleashed through cheaper
pricing and by broadening the product's geographic reach.

The campaign tries to address some of the criticisms
analysts have leveled at DSL, including pricing that was often higher than that of
cable-modem service; the need for truck rolls to complete many installations, and
technical hurdles that generally limited service availability to customers within about
three miles of phone company central offices.

"From a technology perspective, DSL can work,"
broadband analyst and Kinetic Strategies Inc. president Michael Harris said. "The
question is from an operations and business-case perspective, actually deploying it and
making it work as a business."

One of the earliest regional Bell operating companies to
deploy DSL, U S West cut the rate for its low-end, 256-kilobit-per-second asymmetrical DSL
service, dubbed "MegaBit," by 25 percent, to $29.95 monthly, or $47.90 when
bundled with its Internet-access service.

That rate is in line with pricing for other RBOC DSL
offerings, and it brings the service closer to cable-modem service costs of about $40 to
$45 per month.

U S West also rolled out a raft of other initiatives,
including plans to add 35 to 40 more central offices that support MegaBit, primarily in
the 40-plus cities where the service is already available.

Matt Rotter, executive director of MegaBit services, said
that of the 6 million lines covered by the 215 central offices where DSL has been
deployed, about 35 percent to 40 percent on average were qualified to handle the service.

U S West also said it has installed more than 1,000
DSL-access multiplexers (DSLAMs) at central offices to extend coverage to more remote
neighborhoods linked to central-office switches by digital-loop carriers.

"We're putting capacity into our network that's going
over the next two to three months to average about 4,000 to 5,000 ports per week,"
Rotter said.

Further, the telco said it had qualified an additional
400,000 phone lines to offer DSL by modifying the relatively conservative model it had
been using for service-eligibility criteria intended to prevent interference with other
phone services.

Rotter said field experience indicated that the carrier
could safely broaden the criteria it used for modeling disturbances, such as the
insertion-loss parameter measuring signal strength as data travel down the loop.

"As we make these improvements, you're adding 400,000
lines here, 300,000 there," Rotter said. "We're expecting additional significant
improvements over the course of this year."

Actually provisioning those lines is another challenge. U S
West has frequently had trouble with state regulators in Colorado, Washington, Oregon and
elsewhere because of its difficulties in keeping up with orders for even basic telephone
service.

In Colorado, for example, it has begun falling behind again
in filling backlogged "held orders" for phone service, according to a state
Public Utilities Commission spokesman.

And some potential DSL customers have been told that
although their phone lines were qualified, their orders temporarily could not be filled
"due to the high demand for MegaBit service."

Rotter acknowledged that supply had become constrained
earlier this year, partly because of the lack of historical growth data to use in
planning. But he said U S West was addressing that issue, in part by installing one year's
worth of anticipated capacity demand into high-traffic central offices.

For now, the company is on track to provide additional
capacity within 15 to 30 days after a central office hits 90 percent capacity, he said.

"We wouldn't have gone out on this campaign if we
didn't have most of this capacity problem resolved," Rotter said. "We made sure
our capacity situation was well in hand before we went out. We're not looking to create a
bad customer experience."

Another key tool in keeping installs going apace has been
customer self-installations using "splitterless" ADSL, which enables subscribers
to connect their modems to the service without running lines from their computers to
building-mounted phone-line splitters.

The company said of the 89 percent of customers who opted
for self-installation, about 86 percent did it successfully. As part of the new marketing
campaign, U S West will guarantee a successful self-install, or it will send a technician
to help the customer at no charge.

"We did a lot of research with customers who are
novice computer users," Rotter said. "We found that even for folks who have
never taken off the back of their computer, we'd get responses like, 'It's really not
that hard.'"

Mass-market acceptance is a crucial goal for telcos that
have seen high-speed cable-modem services leave them in the dust as far as subscribership.

U S West reported that it added about 10,000 MegaBit
subscribers during the first quarter and it had more than 30,000 as of early April, with
expectations of topping 100,000 by year's end.

Kinetic Strategies estimated that as of April, there were
more than 800,000 cable-modem subscribers in North America -- possibly 10 times the
DSL-customer count.

"Certainly, moving the price points to be more
competitive with cable is a necessity, but it doesn't address the technical challenges
telcos face in rolling this out," Harris said.

The proposed merger with Global Crossing creates its own
set of challenges.

The two companies announced that they would combine in a
complex stock swap that would leave the shareholders of each holding 50 percent of the
combined entity, which will include long-distance carrier Frontier Corp. once its
acquisition by Global Crossing closes.

Combined, the companies have more than $15 billion in
annual revenue, more than 2.8 million fiber miles and an international network linking 185
cities.

The new company would feature two publicly traded tracking
stocks.

One is a dividend-paying stock for the so-called Local
Service Provider units, representing U S West's and Frontier's local-exchange and
directory-printing businesses, plus U S West's in-region long-distance and private-line
units.

The other, growth-oriented stock represents the Global
Service Provider units, which include Global's submarine and terrestrial fiber optic
networks; Frontier's fiber networks and its long-distance, competitive local-exchange
carrier and Internet operations; and U S West's !nterprise data business and
digital-wireless and Internet Yellow Pages units.

The MegaBit business and U S West's nascent VDSL (very
high-bit-rate DSL) operation, providing video and data services in Phoenix, would both
fall under the Global Service Provider sector.

The combined firm hopes to export the Bell's experience in
those technologies overseas to markets served by Global Crossing's undersea fiber network
and its Pan European Crossing grid.

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