The Canadian digital subscriber line (DSL) market is a paradox. On the one hand, market analysts are predicting a banner year for Canadian DSL. In fact, the Yankee Group's Canadian Market Strategies March 2000 report says, "The year 2000 will mark the beginning of a business DSL boom for the Canadian marketplace." The reason: the Yankee Group expects Canadian DSL annual revenues to climb from 1999's U.S. $1.38 million to U.S. $690 million in 2004. Says the report, "This is a compound annual growth rate (CAGR) of more than 250 percent, [which is] nothing short of astounding."
Yet, on the other hand, Canadian DSL providers don't seem too happy about this growth rate. Why this seemingly incongruous response? Well, there are numerous problems dogging the aggressive rollout that many companies are actively pursuing. And make no mistake: "aggressive" is the word that best describes the Canadian DSL rollout.
For instance, Bell Canada "launched a service last year that went from zero to 50,000 lines," says Glenn Ward, the company's vice president of technology development. "We're going to go to 200,000 this year," he adds. "We're going to go to 500,000 next year."
Meanwhile, at Telus—an incumbent local exchange carrier (ILEC) which covers the western Canadian provinces of British Columbia and Alberta—things are beginning to heat up. "We have really stepped up our ADSL deployment for this year with some aggressive growth plans," says Telus Media Relations Manager Doug Strachan. "To the end of 1999, we had about 26,000 customers on ADSL. We are projecting over 80,000 customers by the end of this year."
It's important to note that Bell Canada and Telus aren't alone in aggressively rolling out DSL services. AT&T Canada, a competitive local carrier, is pursuing similar plans, as are CLECs like Optel Communications and Group Telecom. In fact, it's fair to say the entire Canadian DSL industry is on a fast track.
So what's the reason for the rush? Four words: cable TV Internet access. Thanks to upgraded two-way networks and widely available cable modems, Canada's cable TV MSOs have established a commanding lead in the high-speed access market.
The proof: Shaw Communications alone has more than 130,000 subscribers on its Shaw@Home service, making Shaw the largest member of the @Home consortium in all North America. Add to this the 260,000 high-speed subscribers served by MSOs Rogers Communications and Vidéotron, and one can see why Canada's DSL providers are feeling the heat. Says Bell Canada's Ward, "The only competitor we see in all of this—certainly for consumer high-speed access—is [the] cable operators. We definitely have them in our sights to catch up [to] and beat."
But somewhere between that vision and the actual deployment of services, there are more than a few bumps along the road. Without a doubt, the biggest issue is equipment. To build any new network, you needs parts; to build them fast, you need lots of them. Trouble is, the parts aren't always available when Canada's DSL providers need them.
"There aren't a lot of suppliers in this area yet," explains Telus' Strachan, "and they're trying to meet demand from all [over] North America and other countries. So that sometimes is a factor in our ability to roll it out."
Ward is a bit more blunt. "There is a worldwide shortage of a lot of DSL components," he says. "There certainly is a worldwide shortage of fiber and transport transmission equipment." However, "that has not been a constraining factor yet" on Bell Canada's DSL rollout, Ward adds. "We're managing that carefully to make sure that it doesn't become one [problem]."
Even when the parts are available, there are other problems to cope with. For instance, take the very nature of DSL itself. When it comes to high speed access, it's an adapted technology: Originally, DSL was meant to deliver video signals—not data—over twisted copper pairs. Does this matter? Not if the PC is within 18,500 feet of the DSL provider's central office (CO). Past that point, the signal-to-noise ratio over copper is just too low for DSL signals to make it down the pipe.
But that's not all: you could be within 18,500 feet, and still be in trouble. That's because DSL won't pass along copper lines that have loading coils, or that have been "bridge tapped" to provide an extra line to another location. Widely employed by telephone companies, load coils use induction to shift voice frequencies upward. It's an old engineering trick that allows telephone engineers to bypass excessive wire capacitance cheaply. Unfortunately, this puts the voice signals up where DSL signals normally travel, thus causing serious interference.
As for a bridge tap, it's just a loop of copper wire added onto a line connected to the CO. It's a quick-and-dirty way of extending service without running another line back to the central office. Theoretically, this loop shouldn't prevent DSL signals from traveling down the line. In practice, however, bridge taps cause echoes and extra interference, often making the line too poor for DSL transmissions.
The result? For CLEC DSL providers like AT&T Canada, all these glitches mean that what should be a simple sales process isn't. "Traditionally, a customer comes to us and says, 'do you offer service in this location?', and we can say 'yes' or 'no'," says Gord Waites, AT&T Canada's vice president of operations and development for Internet and e-business services. In contrast, the best an AT&T Canada salesperson can say about DSL is "'yes, it looks like it, and we'll do further testing and let you know for sure'."
What about eliminating all these copper wire problems by replacing them with fiber optics? Forget it: DSL is an analog technology designed to work over copper. As such, it won't transmit over digital fiber optic networks.
Right now, both the ILECs and CLECs are trying to overcome this limitation by developing and installing mini-Remote Access Multiplexers. However, until these "mini-RAMs" get out of the labs and into the market, DSL can't be offered to people with fiber between them and the local CO.
So, how's a customer supposed to know if these problems affect his line, or if he's close enough to the CO to receive the service? Generally, he doesn't. He has to ask the local DSL provider, who then asks the local telephone company to test the line. This isn't a problem for Bell Canada or Telus, who can test the line themselves. But it can be a challenge for CLECs like Group Telecom, who are planning to sell DSL over an ILEC local loop.
Getting the ILEC staff to check the loop can take a while, according to Steven Koles, Group Tele-com's senior vice president of marketing. That's because they're busy "struggling with rolling out their own DSL," he says. This is why Group Telecom is "trying to develop some automated tools that would allow us, with a certain margin of error, to be able to do a reasonable amount of loop qualification testing [on our own]," says Koles.
Finally, there's the actual installation at the subscriber end. Even if you're an ILEC selling DSL, getting a subscriber hooked up is "a labor-intensive process," says Telus' Doug Strachan. "We have to roll a truck, as they say, and actually do physical installation of the modem in the customer's home."
Looking beyond the basic technology issues, DSL providers are also being hamstrung by the financial challenges of rolling out the service. "We've really had to grab a whole load of financing to do this," says Mark Segal, manager of network operations and engineering for Pathway Communications, the ISP arm of the CLEC Optel Communications. "It isn't cheap to go and provide this service."
The cost of deployment explains why many DSL providers have put the residential market first. They're anxious to get into this sector, simply because cable TV's already there in force. But what about the business sector, which is under-served by cable TV? "The rollout has been much slower than it has for the consumer," says Mark Quigley, a senior analyst with the Yankee Group in Canada. "The reason for that is there hasn't existed, until recently, the same kind of competitive pressures to push those kinds of rollouts."
This said, DSL business services should soon ramp up in Canada, as CLECs like Optel and Group Telecom target the 408,777 business users working in Canada's six largest cities (source: The Yankee Group). Meanwhile, ILECs such as Bell Canada and Telus will continue to pound their way into cable TV's residential turf, hoping to gain their own marketshare.
Can they make it happen? The Yankee Group believes that when it comes to small- and medium-sized business locations, DSL will win the race hands down because these Canadian companies don't have any affordable high-speed alternatives. ISDN and T-1 cost too much, cable TV isn't wired to business locations, and few, if any, are willing to install a satellite dish to get DirecPC Internet access.
As for residential high-speed access, that's another kettle of fish. With Internet network speeds that exceed DSL's best, and a commanding share of the subscriber base, Shaw Cablesystems President Peter Bissonette isn't losing sleep over DSL. Instead, "We're going to tend to our knitting," says Bissonette. "We're so busy doing what we want to do to grow our customer base, we're not going to worry about it."
Industry observers note that 2000 probably will be the start of a DSL boom in Canada, but it's not one that's going to be achieved easily, or necessarily at cable TV's expense. If anything, Canadian DSL will likely thrive by opening up new subscriber markets, rather than stealing from those already in place. As for the Yankee Group's prediction of 250 percent annual growth? "It's right on the money," says Don Kingston, general manager of Rhythms Canada, a DSL service wholesaler. "There's a huge market for DSL in Canada."