DSL Prime News: The Inside Source  December 6, 2001

Dave Burstein
DSL Prime

Lots more news for next week, including Japan passing the U.S. in new customers. Meanwhile, I'm waiting for word from San Francisco about whether half the cable modems will be shut down as @Home fails, and while Enron is preparing a bankruptcy filing. That's a $60B blow against California-style deregulation. But some folks in D.C. haven't got the message. db

De La Vega up, Burns over at BellSouth
DSL, ISP doing well—now to Latin America
Ralph de la Vega is being groomed for a top spot at BellSouth, now moving from head of broadband to being in charge of Latin America. De la Vega has been in charge of a revitalized DSL program, which had been on pause until late last year. (BellSouth had been considering, and finally rejected, a direct move to fiber.)

DSL subs increased 22 percent last quarter, as coverage passed 60 percent—the highest of the U.S. telcos. They also have the strongest ratings of any U.S. telco on DSL Reports. That kind of success was noticed at the top, and Ackerman brought de la Vega to New York to meet Wall Street.

This is part of a major shakeup at BellSouth, with Vice Chairman Gary Forsee taking over U.S. operations and Jere Drummond and Charlie Coe retiring. Richard Burns, network vice president for Georgia operations, takes de la Vega's old spot.

T-1 becoming just another type of DSL
Covad delivers more reach, same reliability
Because T-1 lines cost 2-5 times as much as DSL, most assume they are a different, more expensive but also more reliable technology. In fact, T-1 circuits nearly always are delivered as a form of DSL, HDSL or HDSL2. There is no interesting technical difference between a $150 commercial DSL connection and a $500-1,000 T-1 line, and in fact the new symmetrical G.shdsl standard is designed to replace T-1, and will over time. Therefore, a T-1 line is inherently no more reliable than an SDSL line. In practice, T-1 lines get a higher level of service, including a telco commitment of repair in 4-24 hours, while DSL lines are specified at 72 hour repair. In addition, most companies give T-1 lines priority for repair, so the results usually (but not always) are better.

Covad is taking this to the logical conclusion, offering TeleXtend, a T-1 connection delivered by their Nokia DSLAMs. It has the advantage of going further, serving the folks beyond 15-18,000 feet. T-1's were designed into the phone network with repeaters possible (which are built into the cost). Most folks look for T-1's for reliability, however, not just reach. Covad pays the phone company for a T-1 to their DSLAM (wildly varying prices, from $45 to $150, mostly dependent on region), and has added a T-1 line card to the DSLAM. (Nokia, Paradyne, Copper Mountain, and Zhone are among the DSLAMs that take T-1's.) On the network side, therefore, Covad delivers the same service as regular DSL customers get. Covad's quality has been well above most, with a designed 10-1 oversubscription in the network and backbone connection. With experience, they may offer improved service level agreements for T-1.

Our mail
C., from one of Germany's most respected CLECs, strongly disagreed with my report of RegTP's acceptance of DT's German pricing (about $15 wholesale, $30 retail, with many different choices), because it was "below cost. Some DSL operators went bust, because they couldn't cope with massive dumping prices of DTAG and their investors didn't see any chance of return on investment except for niches. " I strongly disagree, although costing is very hard to do well. Those prices are appropriate to the marginal costs going forward of a telco selling DSL in millions of lines, based on the internal cost studies of three large telcos described to me, and echo the prices charged in Canada and Japan. Korea Telecom is making a profit at that level, and Hanaro is close.

I don't think raising consumer prices is the right way to protect competition. We often forget that the real social goal is serving customers well and economically, and competition is a means, not the end in itself.

Higher prices do not necessarily bring more competition. The U.S. price is nearly twice the German price, but the telcos are winning 90 percent of the market. Britain's price is even higher, and there is absolutely no consumer competition developing.

C. is clearly correct when he points to other problems, including "the very bad delivery situation for collocation space and leased lines and the failure to deliver line sharing." I believe that rather than raising consumer prices, problems like these should be fixed, the price of colos and leased lines could be reduced, universal service subsidies can be directed to CLECS, and appropriate remedies should be found. RegTP is now returning to these issues, because DT has not been serving competitors properly. I'd go much further, in fact, if DT were to raise prices after driving out competition, as Telia may be doing in Sweden and obviously has happened in the U.S.

Violations like that should invoke antitrust penalties that fine the incumbent treble the consumer damage—which in the United States would amount to literally billions. I've learned from Richard Posner, arch-conservative legal scholar, that antitrust can only work if the fines are large enough to affect even giant companies. Hundred billion dollar companies need to fear massive fines to be deterred from predatory behavior—SBC has essentially ignored fines of about $100M in the last two years. Microsoft—and most analysts—believe even $B or so of damages will have little significant effect on Microsoft's finances.

One of the key Washington people wrote I was too optimistic about the prospects for a reasonable settlement in D.C., given the telcos' renewed push for legislation. My story reflected comments from half a dozen D.C. players (and Larry Babbio of Verizon) that an FCC NPRM could develop reasonable rules for Tauke's new wires and make Tauzin-Dingell unnecessary.

In fact, most had agreed on that "logical loop unbundling"—at a reasonable price and solid quality—would be sufficient, which is essentially the NRC recommendation this week as well. She's right, however, that we should not underestimate the "black ninjas" deployed in D.C. by some of the most powerful companies in the world.

We are journalists, not investment advisers; invest at your own risk and do further research.

Copyright 2001 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

DSL Prime - Page 1
News Briefs - Page 2