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DSL tackles retail distribution

Wed, 01/31/2001 - 7:00pm
Craig Kuhl, Contributing Editor

The use of retail outlets as a sales and distribution channel for DSL (digital subscriber line) is assuming a more vital role in the DSL roll-out strategy for many telcos, ISPs and other DSL service providers. Locked in an intensifying battle with cable modems for high-speed Internet customers, DSL providers are looking at the retail channel as a means of gaining ground on their cable colleagues, who continue to widen their footprint and shorten crucial installation times and service activation windows.

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Recent slowdowns in DSL hook-ups and concern over lengthy installation times have hampered DSL go-to-market strategies, while questions remain about the return on investment for DSL services. With stock prices plummeting at DSL providers such as Qwest (down 14 percent in one day), SBC (down 13 percent) and others sharing much the same fate, most experts say that telco core competencies such as long distance and ancillary services will receive most of the attention, at least temporarily.

Despite those recent setbacks, however, experts agree DSL is a strong bet for telcos and ISPs to compete with cable modem service in the long-term, and using retail space as a competitive edge is an appealing strategy.

They (DSL) must use every channel to sell the service, but cant keep up with the demand. They must look at all products and need new revenue streams because clearly, their traditional market isnt growing, says Mike Goodman, senior analyst at The Yankee Group.

DSL, Goodman insists, is caught in a Catch-22. If theyre not in stores, theyre at a competitive disadvantage, and thats a problem. On the flip side, DSL is a lot more complicated to install than cable modems, so customers can get frustrated, he says.

Retailers should welcome DSL, he notes. Its another product that helps drive foot traffic, and customers want new products like DSL. The danger is, who gets blamed if it doesnt work? Were betting the retailer wont be blamed.

You cant blame DSL companies for pressing ahead with their roll-out strategies, either. DSLs sprint to catch up with cable modems is likely to get interesting by year-end 2003, reports a fresh study by The Yankee Group. Currently, 34 percent of U.S. homes have access to DSL service vs. 46 percent for cable modems. However, DSL service is projected to make up considerable ground in the next five years, and is expected to reach 74 percent by 2005 vs. 79 percent for cable modem service.

Until 2003, cable has the advantage, and it has taken advantage of its speed-to-market with cable modems. But, the telcos realize theyre in a catch-up mode, Goodman says.

The report also projects there will be 14.7 million cable modem households by 2005 and 10.5 million DSL homes. Today, the report says, there are 1.5 million DSL homes and 3.5 million cable modem households.

Those numbers arent lost on DSL service providers such as Sprint, whose three-pronged DSL strategy includes the retail play and leveraging its popular Sprint PCS brand. Our strategy is to go after the three main channelsdirectly to customers, on-line and retail. But branding is crucial in the retail space, and clearly, retail comes straight up in our DSL strategy, says David Guayasamin, senior group marketing manager of Sprints National Consumer Organization.

Sprint is currently working with CompUSA, but DSL at the retail level is a different paradigm, Guayasamin says. Retail is fashion driven, and DSL is fashionable, but not necessarily something customers can touch and feel, and its a complex sell. So, the retail dynamics need a consultative retail force to make it work.

Nevertheless, Sprints DSL retail strategy is in play. Adds Guayasamin: Retail is a great proposition for us to reach people on an intelligent level and is a great environment for synergistic sales.

The plan for retailers such as Best Buy, which is offering DSL service through NorthPoint Communications in 255 stores, is to provide DSL as part of its bundled broadband services available through its national chain of outlets.

DSL is a growth part of our broadband services, along with cable, and part of our go-forward strategy. MSN is our footprint partner, and we will expand the DSL offering to other stores, says Nancy Kielty, director of broadband services for Best Buy Inc. Best Buy, Kielty says, is fully aware of the need for customers to test drive DSL. We want to give customers the opportunity to learn more about DSL and experience it. Our overall broadband strategy is to offer a choice of broadband services.

For companies such as 2Wire, which provides a home portal for DSL and other services, the move to retail channels by DSL providers can only boost its own business. Were creating a new paradigm with PC manufacturers, gaming services, DSL providers and others. Were trying to bring together DSL providers to market our services and allow a touch and feel experience at the retail level for customers, says Michael Hickerson, vice president of sales and service for 2Wire.

Yet key issues must be addressed first, Hickerson admits. When you sign up with an unreliable DSL provider, thats a key. You must be conservative in DSLs expectations, like serving out to 18,000 feet maximum. DSLs lack of timing, installation issues and its lack of initial success are real issues, too. You have to be careful who you choose as partners when you go to retail.

A pressing issue in DSLs move to retail, experts say, is provisioning. Six weeks lag time to get DSL service is a real thorn in the DSL providers sides, and until line testing issues are addressed, it doesnt make much sense at retail, says Jason Marcheck, an analyst for the Strategis Group.

SBC Communications Inc., which is pushing ahead with its DSL retail strategy, insists its installation process time is improving, and is currently in discussions with major retail stores to sell DSL service. Retail is an important channel to get us to the mass market, and we are forming a few key long-term strategic partnerships with retailers in our DSL markets, says Shawn Dainas, a spokesman for SBC Communications Inc.

SBC, he maintains, has reduced its install times to between nine and 13 days and is adding 4,000 DSL customers a day for a total of more than 500,000 current customers.

Still, the problem of unfilled orders is not expected to go away anytime soon. There is a fairly significant backlog of orders on all fronts, and for the RBOCs, their biggest issue is signing on new customers. But, their next logical step is to the retail market with DSL, and they want that to happen. We see a future there for them, Marcheck notes.

The future could include a host of regional and national retail stores, and some outlets many wouldnt consider. Even Blockbuster could sell DSL for video-on-demand sales, theorizes Adam Guglielmo, DSL analyst for TeleChoice Inc.

DSL service through a retailer, he maintains, could follow the Internet sign-up strategy used by PC manufacturers and CompuServe. Yet most retailers, Guglielmo admits, dont see DSL as a big revenue maker for their stores. They see DSL as a way of getting people in their stores, but dont see huge profits. Customers will be looking for it, however.

For DSL providers, their mandate is to make DSL easy to find, install and pay for, and retail outlets are expected to help push DSL sales to the next revenue level. 

E-mail:cakuhl@compuserve.com

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