DSL Fights Back
Resellers Place New Bets on High-Speed Access Technology
EVERYONE SEEMS TO AGREE 2001 was a bad year for
DSL. Deteriorating public perception, decreasing growth rates and the demise of many DLECs made it the underdog of the data world. Understandably, many DSL resellers — ISPs, IXCs and CLECs — have pulled their bets on the technology in favor of more proven competitors such as T1, ISDN or even dial-up. Others, however, are convinced the worst has past and are rooting for DSL’s triumphant comeback in 2002.
There are reasons for optimism. Covad Communications Co. has reorganized successfully after a highly publicized bankruptcy, and Sprint Corp. is rolling out wholesale DSL as the first high-speed local access service to its existing reseller base. In addition, clunky provisioning processes have been streamlined substantially and the industry is working on interoperability standards for CPE and flow-through provisioning systems that will allow resellers to increase their margins, which can be up to 40 percent. Most importantly, demand for economical high-speed Internet access remains strong, particularly in commercial markets. In a March 2002 report, Insight Research Corp. predicts broadband connections for residential users and small- and medium- sized businesses (SMBs) — DSL’s targets — during the next seven years will increase 23.5 percent and 53.8 percent, respectively.
But the technology still has a fight on its hands, not the least of which involves overcoming its reputation. In addition, no killer application has emerged, and cable modem technology represents a clear threat, especially in residential markets. What’s worse, though, is the prospect of a TKO in the form of regulation.
Still in the Ring
Covad’s December 2001 exit from bankruptcy stands as a ray of hope for the competitive DSL set, which last year lost pioneers Northpoint Communications Group Inc. and Rhythms NetConnections Inc.
Chuck Haas, executive vice president and general manager of Covad’s wholesale division, says the shakeup in the DSL space last year slowed Covad’s growth, but he said third-quarter revenue doubled despite the uncertainty.
“Businesses and [resellers] are looking at the stability of providers — all of them, not just DLECs,” Haas says, noting financial trials of carriers such as Global Crossing Ltd., Williams Communications Inc. and WorldCom Inc. “The fact that we have a clean balance sheet gives them comfort.”
He adds: “We see strong growth in the broadband market, but last year was a tough year all around.”
The uncertainty has caused some resellers to sit on the sidelines. A spokesperson for ISPpath told PHONE+: “We decided to get out of the DSL business because of the instability of the market — with NorthPoint and Covad leading the pack. Furthermore, we provide ‘national footprint’ services and DSL providers are regional, and this does not serve our business model.”
TeleChoice Inc. DSL analyst Patrick Hurley says those ISPs that have decided to stay with DSL have diversified intramodally and intermodally, to borrow favorite terms of FCC Chairman Michael K. Powell.
MegaPath Network Inc., for example, announced in mid-March it expanded its DSL provider roster through agreements with BellSouth Corp., SBC Communications Inc. and Verizon Communications Inc. These suppliers are in addition to Covad, Allegiance Telecom Inc., New Edge Networks Inc. and IP Communications. MegaPath Network says it serves more than 3,800 COs and 95 percent of all metro areas with populations more than 1 million using its “service aggregator” model. MegaPath was a NorthPoint customer, but had replicated agreements with other companies allowing it to migrate 96 percent of its customers when the company when out of business. Northpoint’s demise accelerated MegaPath’s business plan for interconnecting to other carriers, says Dan Foster, senior vice president of marketing. The company also is not relying on its DSL business and provides T1, ISDN and ISP functions.
Covad’s “desperation for cash,” on the other hand, drove long-time reseller Core Communications Inc. out of the reselling business, when the companies broke off their relationship in late 2001. “When we looked around [at other DLECs], we didn’t see anyone better or worse [than Covad],” said Chris Van de Verg, CoreTel general counsel, who adds, the company was uncomfortable depending on a Bell company as a wholesale DSL provider. Instead, CoreTel plans to be a broadband retailer and wholesaler and recently installed a microwave-fiber link between PoPs in western Maryland. The Annapolis-based company plans to make additional small strategic investments to reach rural areas, including Maryland’s Eastern shore, western and central Pennsylvania.
CLEC ionex Telecommunications Inc. also is wary of relying on the Bells and has one resale agreement in place with New Edge Networks. Russell Morgan, vice president of products and marketing for ionex, says it has taken its time to identify partners in places outside New Edge Networks’ footprint. It’s no longer good enough just to look at the terms of the business arrangement, you have to check out the viability of the company.
Staying power and financial stability are among the attributes Sprint Wholesale executives tout as reasons resellers should consider its new wholesale DSL offering, which went live April 5. While Sprint owns some local facilities, its DSL offer does not overlap its ILEC territory but is available in the top 32 MSAs.
As stability goes, few can beat a Bell. Unlike DLECs, which focus more heavily on SDSL for businesses, most Bells offer consumer grade and business class ADSL services. While symmetry is more critical for businesses pushing as well as pulling Internet content, ADSL services can be configured with this in mind, says Rich Wonders, senior director of broadband marketing for BellSouth Wholesale. Wonders says resellers should consider BellSouth as a competitive source for business as well as consumer DSL services because “from a coverage perspective, no one matches us in the Southeast.” He adds that company has a professional services staff, automated order entry and availability and status checking.
Wonders’ comments speak to another sore point in DSL’s short history. Aside from the financial morass, “manual provisioning processes; poor coordination between ILEC, CLEC and ISP; and just plain bad execution caused DSL to gain a reputation as buggy, unreliable and hard to get,” according to a TeleChoice March 2002 report, “Why DSL Still Matters.”
Providers say that’s all changing, due in part, to their greater level of experience, to advances in OSS technology and the introduction of self-installation kits for the residential market. TeleChoice’s Hurley says provisioning times for ADSL services are down to about 10 days for most providers and for SDSL about twice that. “This is down from six-plus weeks in many cases a year or two ago,” he says.
Covad’s Haas confirms these stats. Covad’s consumer provisioning intervals decreased from 39.4 days to 10.7 days while business orders decreased from 37.6 days to 19.7 between fourth quarter 2002 and fourth quarter 2001. To accomplish this, Haas says the DSL wholesaler developed proprietary XML-based interfaces with its ISP resellers and EDI bonding with the ILECs from which it orders copper loops. For consumer orders, the self-install kit is shipped automatically, so by the time it arrives, the service has been activated.
Probe Research analyst Liz McPhillips notes time and cost savings go hand-in-hand with automating provisioning. Payback time for technician installed DSL can take up to two years and market forecasts — scaled down as they have been — will not be met unless service providers can install practically every line successfully without the intervention of hands-on techs, she says.
TeleChoice’s March 2002 report notes that 90 percent or more of ADSL lines are self-installed, reducing the cost of acquiring and provisioning a customer by up to $250.
OSS vendor Efficient Networks Inc., a wholly owned Siemens AG subsidiary, released a product last summer to handle the network portion of the provisioning equation. The Advanced Provisioning Manager (APM) is a web-enabled platform that communicates with the access network (DSLAM) and the broadband network, which is predominantly ATM switches, says John Blackford, chief software architect. “Without a system like APM, you have to have a lot of people and trucks to connect up hardware,” he says, explaining APM allows for remote configuration, monitoring and surveillance capabilities. “It makes it possible for a provider to maintain its size and service more customers.”
He says APM allows resellers and service providers to deploy service (including line verification and loop testing, not CPE installation) in seconds rather than days.
To extend these kinds of efficiencies throughout the industry, two technical reports approved in early March by DSL Forum members provide a provisioning framework that will support and ease the reselling process, says Laurie Gonzalez, DSL Forum marketing director.
TR 46 — “Auto-Configuration: Architecture & Framework” enables plug-n-play configuration of equipment. What this means is any CPE would connect to any DSLAM at the CO. “
Gonzalez says such interoperability is a major improvement for end users, but it also is critical for inter-regional resellers. “If you are AT&T and reselling SBC, BellSouth and Verizon and they each have different set ups, you have to know what box to send where.”
Ultimately, she says interoperability would lead to a retail model wherein the end user takes responsibility for procuring the equipment, relieving the reseller from managing (providing, stocking, programming and maintaining) inventory altogether, she says, thus removing much of the cost from the model. For those resellers that want to retain the equipment part of the business, they can work out deals with vendors based on price and features (e.g., voice and video compatibility), rather than whether it’s configured properly, Gonzalez adds.
The DSL Forum is setting up independent testing labs for vendors to certify their equipment against the TR. The group expects compliant product to be available before Christmas.
A second framework, TR 47 — “Operations & Network Management: DSL Service Flow-Through Fulfillment Management Interface,” automates service provisioning for DSL services throughout the supply chain for new orders, provisioning and service upgrades.
Gonzalez says flow-through provisioning has been implemented among ILECs, DLECs and resellers, but they are company-specific. Conforming to one standard can make doing business easier and assists in speedy engagement once resale agreements are signed, she says, noting service providers like Covad and SBC and vendors such as NightFire Software Inc. and Syndesis are internalizing the recommendations now.
Marcille Sibbit, a software architect for NightFire and one of the editors of TR 47, says the recommendation in its current form falls short of enabling repeatable solutions, which speed service delivery. It defines what information needs to flow between trading partners, but not how the information should be exchanged. “The next step in defining the standard is to recommend a protocol for information flows,” he says. “For instance, should trading partners fill out form and fax them to each other, should they format EDI message and exchange them, should they send e-mail messages?”
To this end, the DSL Forum has asked the Standards Committee T1 Technical Subcommittee (T1M1) of the Alliance for Telecommunications Industry Solutions (ATIS) to apply a protocol to TR 47, which Sibbit says will move to a standard based on XML. T1M1 announced last summer completion of the initial stages of standards formulation for tML (telecommunications markup language) with the first application providing support for DSL Service Provisioning in an OSS Interconnection. He says the committee, which is accredited by the American National Standards Institute (ANSI), had hoped to complete its work by November 2001, but was delayed by the events of Sept. 11. It expects to wrap things up this quarter, he says.
Efficient Networks’ Blackford says he believes his company and other vendors will jump aboard willingly. “DSL sales need to pick up to compete with cable sales,” he says, citing a worthy impetus.
DSL’s most touted adversary is the cable modem, which has a greater market penetration particularly among residential users. At the end of fourth quarter 2001, the total (residential and business) number of cable subscribers in North America was 8.825 million while the total number of DSL subscribers lags with only 5.418 million, reports Dell’Oro Group Inc.
The risk of losing voice as well as the data business to cable companies is a mounting concern. TeleChoice reports about 10 percent of residential cable customers already use cable-based voice services, and with next-generation cable technology (DOCSIS 1.1), which ensures QoS and guaranteed bandwidth, to be deployed by the end of the year, packet-based cable telephony is expected to woo additional converts.
Cable competition is one reason Sprint chose to launch its wholesale DSL services to commercial markets. “We are not interested in competing against cable or the Bells,” says Jim Steffens, director of marketing for Sprint Wholesale. “There is a marketplace with consumers that’s a tough play. You have to be close to the COs to get DSL and most homes already have cable hookups. To be a me-too player in residential is an uphill climb.”
While BellSouth plays in the consumer space like most Bells, it also has business-class ADSL services, which tend to be more symmetrical and higher in speed like its 384kbps X 384kbps committed bit rate service or its 192kbps x 192kbps service that’s burstable up to 6mbps in 1mbps increments. MegaPath, a reseller of BellSouth and others, is seeing a growing pipeline with SMBs, says CEO Harry Taxin, noting the broadband penetration among the target is well below 10 percent. Reseller ionex also has focused on SMBs, and says the sweet spot is for customers with four to 24 lines, although the company has installed DSL for companies with up to 150 lines.
Telecom service providers should not be complacent, however. Even the commercial accounts are not a sure thing as many cable companies are turning their focus toward business customers. “While the coaxial ‘last mile’ of cable providers often does not touch the business districts and industry zones within their service areas, the fiber ring backbone of the cable network does,” notes TeleChoice in its March 2002 report. “Initial business efforts have focused on using leased T1 circuits to provide customer with access to this fiber backbone, but now cable providers are exploring building out their own last-mile network to these customers, removing the telco completely from the picture.”
While competition from other technologies is a concern, what may deliver a crushing blow for DSL resale is pending regulation. In late February, the U.S. House of Representatives passed the long-delayed Internet Freedom and Broadband Deployment Act (Tauzin-Dingell Bill, H.R. 1542) by a 273-157 vote. The bill would prohibit the FCC and each state from regulating “rates, charges, terms or conditions for, or entry into the provision of, any high-speed data service, Internet backbone service or Internet access service, or to regulate any network element to the extent it is used in the provision of any such service.”
What this means is the Bells can offer DSL service without opening their networks to competitors, and they do not have to resell their DSL services to competitors. An amendment preserves the line-sharing requirements of the Telecom Act so competitors using their own DSL facilities would be ensured access to unbundled local loops, however.
“Tauzin-Dingell does not affect Covad’s business at all. It affects AT&T, Sprint and WorldCom by creating risk for [Bell] wholesale customers,” says Jason Oxman, assistant general counsel for Covad, adding it represents an opportunity for Covad to serve these ISPs.
The Tauzin-Dingell bill is unlikely to be passed in the Senate, but the House’s endorsement lends political support for the FCC in its efforts to lift restrictions on the Bells. The commission announced it will issue a notice of proposed rulemaking (NPRM) under which it intends to consider classifying DSL as an information service, and as such, under no inherent resale obligation. The commission already classified cable modems as information services in mid-March, and adopted an NPRM into, among other things, whether there are legal or policy reasons why it should reach different conclusions with respect to wireline broadband (i.e. DSL) and cable modem service.
Concurrently, the FCC has begun its first “triennial” review of the framework under which the ILECs must make unbundled network elements (UNEs) available to competitive carriers. Competitors are concerned this review also could result in elimination of certain UNEs they require to provide DSL services. Covad’s Oxman, however, says the FCC actions would not affect its ability to source wholesale local loops, which he says are mandated by law.
The Bells’ argument for these changes is that by not having to make their facilities available to competitors, they have more incentive to invest in building out broadband facilities to greater numbers of consumers. Competitors say they create a disincentive to provide wholesale services.
“Many CLECs will say that without strict regulatory obligations, companies like BellSouth would not be interested in wholesale,” says BellSouth’s Wonders. “This is absolutely not correct when it comes to BellSouth.”
However, he understands why, for example, SBC stopped broadband deployment in Illinois, claiming it could not recover its costs. “It is reasonable to expect to get a return on capital investment,” he says. “Driving down to the cheapest element is not the way to growth.”
Cahners Instat analyst Daryl Schoolar says, when all is said and done, the current rulemaking activity in Washington D.C. might end much of the competition within the DSL market, but it will not end competition within the broadband market, which likely will turn to competing wireline and wireless access technologies. “In fact,” he says, “consumers may find they still have the same choice in service providers, but now they have a greater choice of broadband access technologies.”
|DSL Fills Gap in Market|
|Average Monthly Cost||Cost per kbps||Comments|
|Dial-up||56kbps||$50||89 cents||Low-speed make it impractical for much beyond e-mail, but almost universally available and priced affordably.|
|ISDN||128kbps||$80||63 cents||Speed is not much greater than dial-up; installation can be painful and complex.|
|DSL||768kbps||$80||10 cents||Best price per kbps, but not yet universally available like dial-up or widely available like T1 services.|
|T1/E1||1.5mbps||$850||55 cents||Cost is more than what many small businesses can or are willing to pay.|
*Includes average connection and Internet subscription charges for entry-level business Internet services.
| Allegiance Telecom Inc. www.allegiancetele.com
Alliance for Telecommunications Industry Solutions www.atis.org
AT&T Corp. www.att.com
BellSouth Corp. www.bellsouth.com
BellSouth Wholesale www.bellsouth.com
Cahners Instat www.instat.com
Core Communications Inc. www.coretel.net
Covad Communications Co. www.covad.com
Dell’Oro Group Inc. www.delloro.com
DSL Forum www.dslforum.org
Global Crossing Ltd. www.globalcrossing.com
Insight Research Corp. www.insight-corp.com
Ionex Telecommunications Inc. www.ionex.com
IP Communications www.ip.net
MegaPath Network Inc. www.megapath.com
New Edge Networks www.newedgenetworks.com
NightFire Software Inc. www.nightfire.com
Probe Research www.proberesearch.com
SBC Communications Inc. www.sbc.com
Sprint Corp. www.sprintbiz.com
Standards Committee T1 Technical Subcommittee www.t1.org/t1m1/t1m1.htm
TeleChoice Inc. www.telechoice.com
Verizon Communications Inc. www.verizon.com
Williams Communications Inc. www.williamscommunications.com
WorldCom Inc. www.worldcom.com
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