U S West Scrambles DSL Picture

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U S West Inc. has confirmed plans for a 40-city rollout of
ADSL services by mid-year, lending further confusion to the prospects for success in the
standards-setting initiative recently announced by computer and other industry interests.

The Denver-based carrier said it would launch 'MegaBit
Services' that include consumer-grade access rates at 256 kilobits per second (kbps)
as well as much higher rates for business users in all 14 of the states it serves by June.

The multi-tiered service is based on plug-and-play
equipment supplied by two vendors, Paradyne Inc. and NetSpeed Inc., that employ line codes
and modulation systems that are different from the 'ADSL.Lite' system endorsed
by the new Universal ADSL Working Group.

The UAWG -- of which U S West is a member along with all
the other Bell operating companies, Sprint Communications Co. and GTE Corp. -- has strong
support from Microsoft Corp., Intel Corp. and Compaq Computer Corp. as well as a broad
range of entities from the telecommunications manufacturing sector.

The group has determined it will focus only on solutions
using DMT (discrete multitone) modulation in attempting to come up with a
consumer-friendly ADSL (asymmetrical digital subscriber line) system for distribution in
retail stores as soon as possible.

But while U S West said it would become compliant with any
standard reached through the UAWG, its action accented the liklihood that DSL will be
offered as a consumer product on a potentially vast scale using proprietary systems long
before any standard is worked out.

U S West said it will equip 226 wire centers supporting 5.5
million customer lines by mid-year in more than 40 cities, including major metro regions
such as Phoenix, Ariz., where service is already underway; Denver; Des Moines, Iowa;
Minneapolis/St. Pual; Omaha, Neb.; Portland, Ore.; Salt Lake City and Seattle.

The goal of all these DSL.Lite systems is to make it
possible for users to purchase a modem at the store, connect it directly to a phone jack
off existing home wiring and set up the service account using software that comes with the
modem, thereby eliminating any need for special installers.

While the term 'megabit' is commonly used and is
the line speed target annunciated in the UAWG initiative, the systems are designed to
adjust to whatever speeds local line conditions will support or, in the case of tiered
pricing, whatever speed the customer pays for.

U S West, for example, will price its 256 kbps
'MegaHome' service at about $40 per month, while using the same platform to
deliver a 512 kbps 'MegaOffice' service at about $65 per month and a 768 kbps
'MegaBusiness' service at about $80 per month.

As in other telco DSL arrangements, users can choose the
carrier's Internet service provider as their ISP at an additional cost, which, in the
case of U S West's MegaHome service, brings the rate to $59.95, or they can turn to
other providers.

While these prices represent a significant drop in DSL
equipment costs, U S West is counting on further drops in the price curve.

''Our belief is that we need to be down at around
$45 [versus $59.95 per month] to be really competitive with cable modems,' Zell said.

The telco's action contrasts with plans of Ameritech
and SBC Communications Inc. reported a few weeks ago, where the telcos are moving forward
with commercial rollouts using a version of DMT technology from Alcatel Telecom that is
more complicated to install than the various versions of DSL.Lite.

But all carriers, through their membership in UAWG, made
clear their priority now is on meeting pent-up demand for fast online access with
plug-and-play solutions.

So far, the most readily available solutions in this vein
are not DMT based, which means there are likely to be more rollouts of non-DMT DSL.Lite
systems in the interest of reaching the consumer market sooner than later.

'Everyone has signed onto UAWG, because there's
still more support for DMT than any other single solution and nobody wants to be left off
the bandwagon,' said an official with one of the participating companies, asking not
to be named. 'But, after all these years of standards debates, market forces are
taking over, and that means anything can happen.'

'This isn't about line codes and modulation
techniques, it's about getting rid of truck rolls and serving the largest possible
market base,' said Gary Bolton, senior business manager for Nortel Ltd.'s
'1-Meg Modem' product line.

While Nortel is a member of the UAWG, its position is that
'there are a huge number of issues that people are glossing over' in attempting
to predetermine a standard, he added.

Nortel last week was to begin shipping its 1-Meg system,
which is based on QAM (quadrature amplitude modulation), for market trials involving a
Bell operating company, a major independent, Bell Canada and the competitive
local-exchange carrier Transwire Communications LLC. These and other entities are expected
to move to major commercial deployments by midyear, Bolton said.

Further complicating the picture for the UAWG initiative is
a new system in the DSL.Lite sweepstakes unveiled by Paradyne, based on what it calls
'Multiple Virtual Line' technology, which purports to operate at speeds of 768
kbps bi-directionally at distances of up to 24,000 feet.

U S West officials said they were planning to use the
Paradyne technology in their rollouts as well as the NetSpeed system, which is based on
the traditional alternative to DMT known as CAP (carrierless amplitude phase) modulation.

But Joe Zell, president of U S West's Interprise
Networking Services, made clear that, even with the multiple speeds and robust modulation
techniques, his company anticipates the coverage for Megabit Services in any given area
will be limited to anywhere from 50 to 75 percent of all wire loops. That percentage will
go much higher once the company is able to deploy DSL at remote terminals serving
residential subdivisions at the end of digital loop carreiers, which will occur at an
unspecified future date, he said.

Computer interests participating in UAWG made clear their
primary goal is to achieve market scales that justify mass distribution of DSL modems and
modem-equipped pesonal computers along with the software that supports plug-and-play
capabilities.

Without a universal standard, it will be hard to establish
a retail distribution base for DSL modems, they said.

'We'd expect early deployments [of the
UAWG-endorsed DSL.Lite system] as early as late this year,' said Kevin Kahn, director
of communications architecture at Intel. 'But realistically, mass deployment will
find its way over the next two years.'

While the computer companies and their allies among the
major telcos hope to accelerate decision making in the contentious standards-setting
process, Kahn acknowledged there are many hurdles to be cleared. These include:
endorsement from the International Telecommunications Union, securing of interoperability
agreements through the cooperation of the ADSL Forum, a long-standing ad hoc body and
successful operation of field tests in multiple locations.

'We'd expect to contribute to the standards
discussion over the next year and get to a formal spec proposal by the end of the
year,' he said.

With so much unresolved, Rod Schrock, vice president and
general manager of Compaq's Consumer Products Group, refused to commit to a time
frame for retail distribution of ADSL.Lite gear.

'We'll make that decision when the time is
right,' he said, noting that it all depends on when there is sufficient
'telecommunications infrastructure deployed to support very, very large demand.'

Schrock added, 'It won't be as late as 2000, and
it could be as early as the end of '98.'

At the same time, Schrock made clear his company was drawn
to the UAWG initiative by recent research that shows access to the Internet to be the
'clear dominant reason why people are buying PCs.' Eighteen months ago, Internet
access ranked number seven as a motivating factor in PC purchases, he added.

With telcos pushing ahead with already-available DSL.Lite
systems and the computer industry aware of the significance of high speed in facilitating
the number one reason behind PC purchases, the possibility exists that non-proprietary
versions of DSL.Lite modems will begin showing up in retail stores well ahead of
UAWG-endorsed models.

Nortel, in alliance with Rockwell Semiconductor Corp.,
already has chip sets pegged to its 1-Meg spec in development for retail distribution,
Bolton noted.

'There will be a number of retail modem vendors using
the chip set in modems they'll be selling by the middle of the year,' Bolton
said. 'At that point, it will be up to the vendors and retailers to work out the
timing for retail distribution.'

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