DSL providers bump up bitrates, aim to topple cable

In the U.S. broadband market, the battle between cable and telco players up to now has been a study of speed versus price, with MSOs fielding higher-bandwidth services, and the Bell siblings concentrating on lower-bitrate offerings at lower prices.

But now it appears the telcos are shifting the game plan, with two of the top players in the past month rolling out

3 Megabit-per-second digital subscriber line services and a third talking about major fiber-to-the-home plans. With lower prices and new deals with satellite TV service providers to fill out their competitive bundles, the telcos are hoping to overrun cable's dominating broadband market position.

The latest Bell to raise the broadband stakes is BellSouth, which in April rolled out its FastAccess Xtreme DSL service offering–a 3 Mbps down/384 kilobit-per-second upstream connection for $54.95, or $44.95 if bundled with local voice, long-distance and wireless services. It rounds out a DSL package that includes 256 kbps FastAccess Lite and the original 1.5 Mbps FastAccess Ultra service.

Michael Bowling
While it might appear BellSouth introduced FastAccess Xtreme in answer to cable competitors' 3 Mbps services, that is not the case, according to Michael Bowling, BellSouth's vice president of broadband services. The higher-bitrate service has been planned for some time, but BellSouth put the priority first on rolling out FastAccess Lite, introduced last year.

"We just didn't see people saying 'I need a product that runs 3 Meg,' as much as we saw dialup users say, 'I'm just not willing to pay $40'," Bowling notes. "So that's why we added the Lite product as the first in our portfolio."

Earlier in the month, SBC also rolled out its new higher-speed tier, offering a connection between 1.5 Mbps and 3 Mbps for $39.99 monthly. For customers who buy local, long distance and wireless service, the price is $36.99. The telco has been offering a top-tier 6 Mbps service to residential and business customers for some time, but the 3 Mbps service was created based on customer input.

"It just so happens that the timing was just a little bit behind when cable came out with its 3 Meg product, but it was driven by what customers were telling us they wanted and needed in their broadband service," says Devon Nongbri, director of marketing for SBC's broadband division.

Verizon Wireless, meanwhile, is still looking at the potential of a 3 Mbps service. But it is focusing far more attention on a new fiber-to-the-home initiative, with plans to extend optical links to 1 million homes passed by the end of this year, says John Wimsatt, vice president of broadband marketing for Verizon.

"When you look at fiber-to-the-premise and you start to talk about 30 Megabit-type services with symmetrical speeds, we really see that as an end game from a broadband perspective as far as migrating away from these first-generation type broadband applications," he says.

Nor will fiber be confined to greenfield developments. Verizon plans to extend fiber to high-value customers and use it as a primary replacement for worn copper lines.

"We are past the point of return on this one with Verizon," Wimsatt notes. Verizon isn't releasing how much it will spend on the project, but "we are making substantial capital investments really over the next five to 10 years to get fiber fully deployed into our network."

In the DSL competition, Verizon is going after value for customers with its 1.5 Mbps/128 kbps service for $34.95, or $29.95 when bundled with other Verizon services. While other Regional Bell Operating Companies and cablers are delving into tiers, Verizon is holding fast to its single offering.

DSL narrows the gap with cable modems by 2008.

"Our position has always been that [a lower-speed tier] is not broadband," says Wimsatt. "We've looked at tiered speeds as well–256 [kbps], 384 [kbps]-type services. But our position has always been to offer our best speeds at our best price."

It also is pitching the service to a much more mainstream market, where customers either don't understand how broadband could benefit them, or are waiting to find the best option. In both cases, Verizon's lower price for comparable service to cable competitors is the selling point, Wimsatt says.

"We are calling out Comcast. We are calling out Road Runner. We are calling out Cablevision [Systems Corp.] in the New Jersey, New York, Westchester areas and saying, 'Wait a minute. $42.95 a month, and what do I get for that? Oh, let me try that again with Verizon [at] $29.95? Well, that's a no-brainer'," he says.

Such moves could further narrow the broadband market gap. In 2002, there were about 4.6 million U.S. DSL customers, equaling 29 percent of the 15.8 million broadband subscriber market, according to Jupiter Research figures. Cable subscribers totaled 10.9 million for 68.98 percent of the market.

In 2003, the DSL subscriber count rose to 6.7 million, constituting 31 percent of the market, while cable claimed 14.4 million customers, dropping it back to 66.9 percent.

Tom Starr, president and chairman of the DSL Forum, points out that worldwide, DSL already leads in broadband deployment–and with bundling and higher-speed offerings, there is good reason now to believe the U.S. telcos will gain ground.

"The lower price of course has had an immediate impact and will continue to be a force in that," he says, adding that the service footprint will also widen to drive penetration. "Right now in the United States, I think we are at approximately almost 75 percent availability, which means there is a whole quarter of the market there that hasn't been tapped."

Westell Communications’ Plant
Workers at Westell Communications’
plant are assembling more digital
subscriber line modems as the
market continues to accelerate.
The picture also is changing for Westell Technologies Inc., a major supplier of DSL modems.

"The rate of growth and the uptake has definitely turned the corner in '03," says Tom Mikol, director of marketing and communications. "We're seeing that our service provider customers are becoming more aggressive with pricing–they are putting incredible pricing pressure on us, so that they can offer their services cheaper to the consumer."

The DSL providers' biggest weapon right now is their more aggressive bundling offers, giving discounts for landline voice, Internet, cellular wireless and now satellite TV services, according to TeleChoice Inc. analyst Pat Hurley.

"I think that is their biggest advantage now, aside from the fact they are more willing to go lower on price," he says. "I think the phone companies can do some interesting bundles surrounding advanced voice services and combining the mobile, doing the one number, 'find me, follow me' stuff. They've got an advantage there."

Ironically, the biggest problem telcos may face is an image problem among consumers.

"There still is a hangover from the early days of DSL, and they've heard the horror stories, and the cable companies didn't have quite as many horror stories," Hurley says. "It's ironic that we've reached the point in time where people trust their cable company more than their phone company."

As for whether DSL will close the subscriber gap with cable competitors, "I'm not completely optimistic they will. But the race isn't over yet–there are still a lot of people out there who don't have broadband, and they could come up with a better marketing strategy or a better service," he says.


DSL TV picture focuses on satellite now, fiber later

TV service over digital subscriber line service isn't dead, but you may have to squint a bit to find it in the U.S. marketplace. Advancements in DSL technology have made it more possible than ever to transport television service over a copper connection, and there have been rollouts among smaller independent telcos. While the major U.S. Bell carriers aren't counting the technology out, they are focusing for now on reseller deals forged with satellite TV operators to fill out their service packages.

That might present a bleak picture in the U.S. market, but Microsoft Corp. sees reason for optimism. The software giant has been tuning into IPTV for some time and has had conversations with major DSL and cable networks worldwide, notes Lynne Elander, Microsoft TV's general manager of marketing.

"I think it would be fair to say all of the telcos worldwide are actively looking at their options, and as some of these other things have happened on video compression and the cost of DSL network elements coming down, they are constantly re-crunching their models," she says.

The rise of bandwidth-hungry HD complicates matters, and there are some who say it will force the telcos to consider only fiber-to-the-home connections. FTTH plays have been announced by telcos including Verizon Inc., and SBC Communications Inc., but Elander doubts it can scale to reach most of the Bells' customers.

"It's the going back and ripping up of all of America in order to distribute fiber-to-the-home–that's not a business they are at all interested in being in," Elander says.

Indeed, for the near term, the RBOCs are putting their big bets behind satellite plays. After announcing its deal with DirecTV in August, BellSouth started rolling out a DBS offer to its customers in April. It will be introduced in marketing campaigns across all of its sales channels by mid-year.

But BellSouth did keep a door open, including in its agreement with DirecTV a clause that the two companies would work together on technology options for delivering future TV service.

"That's the important part–we've got that door open to do the investigation as to what makes the most sense," says Michael Bowling, BellSouth's vice president of broadband services. "But in the near term, the great thing for us is we've got a great partner like DirecTV, so when our customers call in and need a video or entertainment experience, we are in a position to deliver."

Meanwhile, the DISH Network service has now been rolled out to SBC's 13-state territory, and so far, "the response has been tremendous," says Devon Nongbri, director of marketing for SBC's broadband division.

While SBC is now looking to DISH for its video play, it isn't completely setting aside a wireline TV product down the road, and that includes its passive optical networking technology.

"Fiber-to-the-home is a big deal with SBC," Nongbri says. "We do have some tests going on, and it is something we are really excited about. But it is one of those products and one of those technologies that is in an evaluation stage at this moment."

Fiber is even more firmly the vision for Verizon's long-term TV service future, according to John Wimsatt, vice president of broadband marketing. As with the others, Verizon also has struck a satellite TV reseller deal, in this case with DirecTV.

"I think fiber is going to be the end game for us on video," Wimsatt says. "We really see the DirecTV relationship as being our interim solution for that, and the longer term will clearly be with fiber." –KB