DSL Prime: DSL Deployment

AOL has started to deploy DSL, but few believe that company will achieve in broadband the dominance that it maintains in dial-up. By the way, what ever happened to that DSL extender technology, G.shdsl?

by Dave Burstein DSL Prime [August 26, 2002]

AOL, at last, doing DSL
400,000 subscribers through the telcos
Saul Hansell of The New York Times got a rare look inside AOL, traditionally a closed company to reporters. He found a staff committed to reducing ads and improving community, as well as a dedication to broadband. A while back I calculated AOL has lost 2 million customers to broadband. Earthlink has the early lead, and Garry Betty told Hansell he was ready, saying, "even if they are wildly successful, AOL will never be able to replicate the dominance they have in dial-up in the broadband market." Microsoft is taunting AOL with TV commercials suggesting a switch to MSN broadband. Much of MSN's growth is DSL, although Bill Gates is the largest shareholder in Comcast and Paul Allen in Charter.

Hansell reports "America Online has proven impotent in head-to-head competition with the cable and phone companies...Verizon Online represents 70 percent to 80 percent of [Verizon's DSL] total." SBC has retained as many as 90 percent of customers for itself in the past. The U.S. telcos typically charge $35+ wholesale to DSL ISPs, more than the retail prices in Canada, Germany, and Japan—or the retail DSL price in Verizon's bundle. (Hint to Mike Powell: do something about that tariff if you want ISP competition.)

26 million subscribers, many of whom like the AOL features, are a powerful base. But AOL's DSL service problems seem acute—I often get e-mails like this one: "I have been trying to get hooked up for 9 months and they still haven't figured out why they can't get me connected"

What ever happened to G.shdsl?
Prices high, telcos slow
The U.K. is one bright spot, because OFTEL has ordered BT to make a symmetric service available to CLECs. They've involved Bulldog in the project, and within the year may have a general offering that will enable Voice over DSL as well.

G.shdsl can deliver two and four meg symmetrically, creating a natural niche for business services. Verizon announced the product for this year, and BT was ordered by regulators to make it available. It's ideal for CLECs who want for offer 8 to 16 voice channels while renting only one line. Many respected vendors have products available. Repeaters are built into the standard, allowing 30,000 foot reach at modest cost. Easily matches the specifications of HDSL for T-1 lines, still a high volume product. Symmetricom is shipping GoWide, which can bond lines together for customers needing 3 Mbps to 10 Mbps. That's a hot niche, faster than a T-1 but potentially much cheaper than a T-3.

With volumes small, equipment prices are high. A simple modem costs $200+, despite a bill of materials little higher than a $50 or $60 per ADSL modem. CLECs are profoundly cash-short, so telcos are critical to create a volume that can bring the price down. Deploying across telco network is a multi-million investment for a market that's still unproven. ADSL is fine for many business customers, shaped to 384 Kbps or 768 Kbps symmetric. They can't be sure how many customers will pay considerably more than ADSL prices but wouldn't buy a (more profitable) T-1 circuit.

Breaking the logjam quickly requires a supplier to take a risk. Modem makers can offer selected customers better pricing, knowing a BellSouth sized company can grow into high volumes. Alcatel can offer the first G.shdsl linecards at a price too good to pass up, delivering profits from later sales. That strategy has sold hundreds of millions of dollars worth of linecards for Alcatel Litespan remotes, currently the most aggressive DSL expansion in North America. The technology works, now some visionaries have to make a business as well.

Copyright 2002 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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