Cable may not have the data field to itself
It's taken longer than many people anticipated, but the local exchange carriers are finally getting their acts together in the use of high-speed digital subscriber line technology (DSL).
There's still a long way to go, with mass deployments still a year away in most regions. But there appears to be little reason to expect that the technical, regulatory and business operations barriers that have stalled rollouts so far will prevent most major carriers from responding to the competitive challenge posed by cable and other providers as broadband data services take off in the mass market.
"DSL is getting better," acknowledges Richard Green, president of Cable Television Laboratories Inc. "Cable has a finite window of opportunity to use in establishing its (high-speed data) platform in the marketplace without serious competition from the telcos."
That window will probably be open for another year or so. By most accounts from vendors, analysts and the carriers themselves, the telephone industry, despite pockets of intensifying activity, won't be moving to mass deployment of high-speed data services over copper-based DSL technology in '98.
Asked whether '98 will be the big volume year vendors have been waiting for, Westell Technologies Inc. Senior Vice President of Sales, Mark Zionts, responds with a candid, "No." Westell, a leading supplier of DSL systems, sees '98 as an "extremely important, ramping-up year," he says.
But it would be a mistake to think cable will have the high-speed data field in the residential and small office markets to itself for much longer. US West, Ameritech and SBC Communications subsidiaries Southwestern Bell and Pacific Bell all say they've crossed the line from testing to commercial deployment of DSL services, though the Pacific Bell, Southwestern Bell and Ameritech efforts are still in the pre-tariff early launch phase. GTE, whose CLEC subsidiary has MDU DSL service underway in southern California, is set to begin commercial service in some markets this quarter. Bell Atlantic says it will do likewise by the third quarter, leaving only BellSouth to say what its '98 plans are.
The SBC Communications launches, in the Bay Area of California and Austin, Texas, and the Ameritech rollout, in Ann Arbor, Mich., are true DSL deployments using gear from Alcatel that delivers up to 1.5 megabits per second in the downstream, and 384 kilobits per second upstream. US West, which is marketing service in Phoenix, is relying on IDSL technology at the outset, that uses ISDN modulation techniques to deliver data at 192 kbps, while employing IP packet transport, rather than the time division multiplexing used in standard ISDN services. The company says it will also soon bring HDSL (high-speed DSL) technology to market in Phoenix and other areas targeted for DSL rollouts this year. This is a symmetrical technique geared to single-line applications at 750 kbps that has long been used in delivering T-1 (1.544 Mbps) over two standard telco lines to business customers.
Making matters more challenging for cable is the fact that, with deployment of DSL infrastructure, the carriers are putting in place a platform that can be used by competitive carriers and Internet service providers as well, ensuring that DSL data services will be marketed harder and further than if the telcos were doing it all themselves. The shape of what can be expected along these lines can be found in the Bay area, where Pacific Bell's DSL service is now being made available through several ISPs and two CLECs, after an initial marketing phase involving just one ISP. SBC's own ISP unit will itself become a provider over the platform later this year, says Michael Powell, director of DSL marketing for SBC.
The carrier plans to expand the Pacific Bell DSL offerings, now available from 13 Bay Area central offices, to most of the COs there, as well as to a large share of COs in Los Angeles and Orange Counties, San Diego and Sacramento over the next year, Powell says. SBC, now offering DSL through four COs in Austin, Texas, also plans a big push in that state this year, with rollouts planned for Houston and Dallas as well as additional COs in Austin, he says.
PacBell's "FasTrak" DSL service offers a symmetrical 384 kbps line rate priced at $80 per month for residential users and $135 for business users, and an asymmetrical service at 1.5 Mbps downstream and 384 kbps upstream priced at $150 and $250 per month. Users also must pay $450 for the modem and an installation fee that averages about $125.
"These are not mass consumer prices at this point," Powell acknowledges, noting that pricing is still in flux prior to filing of tariffs. Adding to the costs, he notes, is the fact that users must also pay an ISP for Internet access and other value added services.
Until now, the only ISP authorized to use the FasTrak facilities was Concentric Network Corp., a Palo Alto-based entity that targets business users with services offered from points of presence covering approximately 90 percent of the nation's population base, according to company data. Concentric, which has been supplying Internet access and a multitude of other value-added services such as virtual private networking capabilities over the FasTrak system since November, currently charges residential and business customers alike a monthly flat rate of $95 for unlimited usage at the lower speed, with the higher-speed service priced at $195.
Eventually, the company will implement usage-based rates, says Jim Southworth, director of advanced networking services and technologies at Concentric.
Concentric plans to expand the offering in California to wherever Pacific Bell expands its DSL platform, Southworth says. In addition, the company is preparing to roll out DSL services in a number of other major markets this year, including New York, Atlanta, Dallas and Washington, D.C.
Most of Concentric's customers receive the DSL service over their existing lines rather than taking a second line to get the service, Southworth notes. The carrier supplies a coupler at the premises that siphons off the DSL data signal to a line that is directly installed to the user's modem. A typical customer might be a telecommuter with a single modem outlet or a small business with a unit serving multiple users.
Installation has proceeded slowly through the early phase of the rollout, with PacBell pursuing a conservative policy of line qualification before it hooks customers up.
"We've seen only about a third of the service area qualifying for connectivity, rather than the 60 percent or so we anticipated," Southworth says.
But Southworth and Powell both assert this will change now that PacBell has had enough field experience to set more liberal parameters on line qualification, which, along with distance limitations, include limits on the presence of bridge taps and line coils and on the number of interfering high-speed lines that can be included in any bundle of twisted pair wires. "We're adjusting the line qualification numbers with the intention of getting to the 70 to 75 percent qualification level over time," Powell says.
One factor improving the percentage of coverage for DSL involves second line installations, where the new lines often have fewer impediments than existing lines. PacBell will install second lines "when requested," Southworth says, but it is not pushing this approach, given its interest in using DSL to leverage greater value out of existing plant.
An important element in Concentric's expansion plans is the emergence of "P-CLECs," a new category of CLECs that are committed to operating in packet mode and supplying ISPs the facilities and expertise they need in moving to higher speed services. One of the first P-CLECs, Covad Communications Co., is offering services directly to corporate customers and to ISPs using its own DSL platform in conjunction with leased lines from PacBell.
Covad, with investment support from venture capital firms and Intel Corp., is offering IDSL at 144 kbps in each direction, as well as two versions of higher speed symmetrical DSL at 384 kbps and 1.1 Mbps, and a 1.5 Mbps/384 kbps asymmetrical service, says Lou Pelosi, director of marketing at the CLEC. "IDSL gives us the opportunity to offer a higher speed service over the 30 percent or so of the lines that are too long to support the high-speed rates," he notes.
The company's flat monthly rates are $90 and $125 for the lower-speed symmetrical services, and $195 for the higher speed symmetrical and asymmetrical services. The price is the same for ISPs as it is for direct corporate customers of the CLEC. "With ISPs, we supply the platform and install the line as a supplier of second-tier support, leaving ownership of the customer and first-tier support to them," Pelosi says.
Covad is supplying modems for the IDSL service from Cisco Systems and Pulsecom Corp. at about $250 per unit, while the higher speed modems, from Diamond Lane Communications, sell for $550. The firm will consider higher speed options as the technology evolves but is satisfied with these performance and price levels at this point, Pelosi says, acknowledging that equipment and monthly prices now are well above the levels that will support a mass-consumer market product.
Covad, currently passing about 400,000 households and small business locations in the Bay area, has already negotiated or is negotiating interconnection agreements with telcos in a number of regions around the country, with plans to expand to a number of additional states in '98, Pelosi says. "ADSL is proving to be a cost-effective technology that will allow us to move quickly to widescale service offerings," he adds.
Covad calculates its costs with regard to arranging interconnection agreements and setting up its equipment "cage" at the central office come to about $5 per household across the 30,000–40,000 households served from the typical CO. Beyond that, the costs of provisioning are covered on a pay-as-you-go basis as modems and second lines are installed to accommodate each new customer, Pelosi notes.Ambitious plan
As long as DSL services are based on economic models that have a high-priced facilities piece as well as a service provision piece in the monthly rate, the primary competitive impact where cable is concerned will be in the pursuit of the small office and work-at-home markets. But, if the aggressive pricing and expansion plans put into play by Ameritech are any indication, the high-cost disparity between DSL and cable data on the residential side could soon disappear.
Ameritech's cautious, low-key rollout in Ann Arbor is the beginning of what officials promise will rapidly become a widescale offering, reaching Chicago by mid-'98 and extending to 70 percent of all Ameritech customers within three years. It is by far the most ambitious plan for use of DSL technology yet announced in the telephone industry.
"We're targeting early adopters right now, but we see this as a mass market product and have priced it accordingly," says Steve Rawls, product manager for high-speed access at Ameritech Interactive Media Services. The monthly rate for 1.5 Mbps/128 kbps asymmetrical service through '98 will be $49.95, going to $59.95 later, with installation at $150 and the modem, priced at $199, offered at no charge in '98.
Ameritech is using gear spec'd to deliver data at 6 to 8 Mbps, leaving it a significant margin for improvement in service once it determines what the real-world parameters are at 1.5 Mbps. "DSL can't reach everyone," Rawls says, noting that marketing is limited to mail drops and phone calls that target individuals well within the distance reach of the technology. "We expect further enhancements to DSL technology will eliminate many of these concerns as we proceed," he adds.
These more robust systems improve coverage by raising the number of line coils and bridge taps that can be tolerated on any one line and by doing a better job of combatting line noise known as "near cross talk," which occurs when too many lines within the same wire bundle are operating at the high modulation levels, says Steve Makgill, director of ADSL product management at Alcatel. "One of the reasons the industry chose DMT (discrete multitone modulation) as a standard is that it offers superior performance against things like cross talk and noise impediments created by bridge taps (points of line extension into newbuild areas)," he adds.
The next generation gear also puts DSL in reach of customers served from digital loop carriers, which are the high-speed connections from COs to remote terminals serving new growth areas that would otherwise be out of reach of the CO. The new systems use "DSLAMs," which are DSL access multiplexers that take the multiline high bit rate signal directly from the digital loop carrier, avoiding the need for installing DSL modems on individual lines at the remote terminal. Makgill contends that DSLAMs, by extending DSL into areas served by newer lines, will improve the overall coverage ratio to something on the order of 90 percent.
DSL detractors often cite high modem costs as intrinsic long-term barriers to mass market deployment, especially as compared to the fast-dropping cost curve for cable modems, which are now selling at or just under $300 per unit in large quantities. @Home Network, for instance, in a recent document listing the drawbacks to DSL, puts the cost of DSL modems, two of which are required per line, at between $500 and $2,000 each.
However, says Westell's Mark Zionts, even the low end of that spectrum "is way too high." "Our financial reports show we shipped 5,000 lines over the past year with revenues of $4 million, which translates to $800 per (end-to-end) system," he says. "Next year, we're talking more about $500 end-to-end."
While Rawls acknowledges that Ameritech's post-'98 modem charge of $199 is below cost, he says it's close enough to the anticipated volume deployment benchmark to be sustainable as the carrier rolls out its major markets over the next two years. "We think this is a realistic price point to get started at, given we want to reach the mass consumer market," he says.
One of the most significant advances in DSL technology concerns efforts to make installation easier, starting with the aforementioned splitting of the DSL signal from the POTS line at the customer premises for delivery over a separate inside wire to the PC, which overcomes the home wiring problem. Equally important is the progress being made in development of installation software, led by the efforts of Microsoft Corp. in conjunction with its year-long test of DSL with GTE around Redmond, Wash., where about 1,000 users are now connected to 1.5 Mbps service.
Microsoft is "doing several things to foster a plug-and-play capability for ADSL modems," says Bill Anderson, director of marketing for Microsoft's Internet customers unit. Along with working with GTE, which is providing service over CAP (carrierless amplitude phase) modulated systems, the company has entered into a software development agreement with Ameritech, which is using gear based on DMT (discrete multitone) modulation. The software will allow users to configure their PCs for DSL by simply clicking onto an icon to be supplied with future versions of Microsoft's operating systems, Anderson says.
While the multiplicity of DSL systems complicates matters, he adds, Microsoft is "figuring out how to abstract as much as possible above the network interface" to achieve plug-and-play capability across multiple systems, much as it did in creating a printer interface for its operating systems that works with many different types of printers. The company is also working with PC manufacturers to foster DSL connectivity, Anderson says.
Ameritech, too, is working with various hardware manufacturers to make PCs DSL compatible, Rawls says, suggesting that DSL modem-equipped PCs could be in retail stores by Christmas of '98. Retail availability of DSL-ready PCs "could very well occur" by next Christmas, Anderson agrees.Regulatory issues
Beyond technical issues, a factor slowing DSL has been telcos' concern over regulatory issues, where pricing a consumer-level service at 1.5 Mbps or higher speeds is complicated by efforts to maintain high prices for 1.5 Mbps T-1 commercial lines, and where deregulation threatens to force telcos to make DSL lines available to competitors.
Ameritech is biting the bullet on this issue by offering DSL through its unregulated ISP (Internet service provider) subsidiary, while making the platform available to all ISPs, Rawls says.
"High-speed access is the future of the Internet," Rawls adds. "Our intention is to distinguish our service by making it enjoyable to use, with full customer support available through an 800-number 24 hours a day."
None of this suggests the telcos are in a position to roll out DSL like sliced bread, but it is clear that they are moving into that interim stage of graduated deployments well known to the cable industry in its early going with high-speed services. "The telcos are starting to make DSL move now," Anderson says. "Over the last three months, we've seen a real spirited interest taking shape throughout the industry."
|About the author|
|Fred Dawson is a regular contributor to Multichannel News and other industry publications and publishes the monthly newsletter "Broadband Commerce and Technology." He is also a long-time, regular contributor to CED and is principal of Dawson Communications.|