DSL Prime: Politics

Even if the FCC acts now to restore line sharing it will make little difference as CLECs have abaonded the residential market to focus on small business clients, where there is less political risk.

by Dave Burstein DSL Prime [August 20, 2004]

U.S. Line-Sharing Ready to Return
Powell woos Dems
A remarkable vote of 1 for, 4 against killed line-sharing in the U.S. in 2003, although the change won't apply until late 2004. The one voter for, Kevin Martin, persuaded Copps and Adelstein to trade their votes on line-sharing for his support on UNE-P.

Line-sharing at low cost was a crucial element building Yahoo BB in Japan and Free.fr, two of the most successful competitors, and essential to Covad's consumer strategy. Mike Powell wanted to kill it in 2002, but had seen the wisdom by the time of the vote, and is wooing Copps and Adelstein to revive it. Martin's opposition is quiet, whether from political reality or perhaps a change of heart.

Unfortunately, bringing back line-sharing will only have a small impact in the consumer market. Rules matter, but the real market is usually more crucial. Technology moved on, VoIP works, and most customers will buy a voice + data package which will be generally cheaper than buying separately. Yahoo and Free now provide voice and data to almost every customer, and that's likely the most common model going forward.

For Covad in particular, Vik Grover at Needham is on target, writing "anyone selling Covad on fears of interim rules and/or continued phase-out of line-sharing does not understand Covad. Covad is primarily an enterprise provider. When they serve an enterprise they order stand-alone loops and do not need line-sharing; it is only upside if line-sharing is upheld by FCC in interests of bipartisan support for interim rules."

Charlie Hoffman of Covad affirms, "from the beginning of Covad we have been focused on the small and medium business market. 68 percent of our revenues come from Biz." Hoffman was reacting to my observation, picked up by CNET, that having a major impact on the consumer market requires an offering dramatically faster, cheaper, and/or better supported than the Bells. That's tough to deliver, because the Bells have significantly improved their service (although they still have a long way to go). Hoffman prefers not to focus on consumers. "The business segment continues to be our bread and butter, and profitable."

Conflict of interest note and a little self-promotion
I welcome consulting, and have done some lately through Gerson Lehrman's Council of Advisors. Investors and others who want questions answered about broadband can also contact me directly to arrange a call for an hour or longer. One call was about the prospects for DSL vs. cable in Japan, another on the likely growth of the VDSL chip market. As always, I don't try to guess how stocks will move, but I'm happy to discuss the industry.

Contact me if you're interested in a presentation on improving TV over DSL, DSL prospects country-by-country, best practices, or a candid review of plans under non-disclosure. Readers will have to judge whether consulting or advertising unduly influences what I write.

Also for the record, we've added Google Adwords to the DSL Prime web site. The result is that we've shown ads for Covad, SBC, and the like as chosen by Google, and received a (very) modest sum in return. If any of the advertising material is misleading, let me know. We have the option to block specific ads.

Copyright 2004 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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