DSL Prime News: The Inside Source  
January 9, 2002

Dave Burstein
DSL Prime

Briefs
Arescom announced sales of over $30M, making them one of the fastest growing CPE vendors, showing the effectiveness of a low-price strategy. They predicted $100M in sales for 2002, but provided no info on profitability. Some of those modems seem to be overheating, unfortunately. DSL Reports says Earthlink is recalling some.

Broadslate has laid off most of their staff, with dismal prospects. The Virginia CLEC had raised $60M in the summer, and was able to pay severance of a month or more to most employees.

Add Jetstream to the cutback list. Sundi Sundaresh told us "With today's economic climate, we had to realign our top line, and then adjust our expenses. It was incredibly painful—one of the hardest things I've had to do. We reduced the work force about 20 percent, especially in marketing. Looking forward, global markets are very encouraging, as our recent Versatel announcement makes clear, and we've got more on the way. Voice over DSL has become a great way to bring down a telephone company's cost of delivering service. " BellSouth's de la Vega is impressed with Jetstream VoDSL "We're currently trialing voice over DSL in Atlanta and Miami, and it's been very successful. "

The USTA is adding lobbyists but cutting other staff, with guards on hand to escort some departing employees. Ted Hearn in Multichannel News reported Qwest had dropped out in a financial dispute. Walter McCormick from the American Trucking Association is the new President.

Hearn also reported that Billy Tauzin, in an effort to get his bill through, threatened the cable providers (AT&T) with tough regulation if they didn't back off.

International
French Telecom passed 300,000 users, having wired 63 percent of the country. They'll go to 70 percent in 2002 and 80 percent in 2003. Without competition so far, they been able to keep price at 300 francs, the main reason for slow takeup. We met with key multimedia developer Montparnasse (they do the Louvre CD-ROM) in Paris, who believed pressure from the French business community will inspire FT to move more aggressively.

Fujitsu's @nifty ISP is at five million members and intends to stay competitive, with ADSL prices dropping in Japan. IPv6 is going into DSL field trials. Sony may be buying the entire operation, per the Japanese press. One valuable service they offer is machine translation from Japanese to English at http://www.nifty.com/globalgate/.

NTT is matching Yahoo! BB's 8Mbps DSL service this month and will price it close to Yahoo! BB's. Market dynamics have forced NTT's management to introduce a more competitive product, Sameer Bhasin of Jeffries reports. The price is under $20 U.S. for 1.5Mbps and $23 for up to 8 Mbps. Yahoo! BB deployed nearly 60 percent of the total 280K lines in November

Point Topic includes up-to-the minute figures on European DSL by country in a very helpful article on unbundling here
Competition

"Comcast now loves cable telephony", UBS's Wahlman reports in the wake of the AT&T buy. Promising to take on the telcos with cable telephony is part of their strategy to get the merger approved. Previously, Comcast had been adamant about delaying cable telephony until 2003-4 when IP service under DOCSIS was mature. Comcast also promised to make service available through independent ISPs. Of course, we know how empty some large company commitments have been, and how some large companies have been lying with impunity.

Akweli Parker in the Philadelphia Inquirer, Comcast's hometown paper, points out the price for AT&T is so high it will be very tough to make money on the deal. DSL Prime estimates $15 of every monthly cable bill will be required just to pay off the goodwill implicit in the deal. If the bid is accurate, that means cable bills include about a 40 percent premium over costs of the service and a reasonable return on investment. That a good benchmark of the cost of monopoly and the weakness of regulation.
Chips

While TSMC announced they are seeing strong orders for .13 and .18 micron parts, they and UMC continue to have enormous unused capacity in the higher geometries still used by most DSL chips.

The lower chip prices are carrying forward to the modem market, were a recent large contract for DSL Ethernet modems went for $58, with generous terms for the buyer.
People

Daniel Berninger is editor of the new Pulver Telecom Antitrust Report. The first issue points to the similarities between today and 1974 when Bill McGowen started MCI: recession, closure of capital markets after tech investment boom, an incumbent company reluctant to comply with regulatory openings to competition, and peers headed for restructuring or bankruptcy. Most of the issue is a look at a crucial telco antitrust ruling. It inspired me to begin working on an item "Goldwasser leaves telcos wide open to antitrust suits." (Comments on that on very welcome.) The price is professional (high), but they make a sample available at here.If you care about telecom law, you should at least ask for the free sample, with some powerful contentions.

Sandy Teger and Dave Waks (who was an early Prodigy exec) are now sole publishers of Sandy and Dave's Report on The Broadband Home. Free subscriptions to a very useful pub here.

Simon Applebaum is now at MultiChannel News, displaced after 18 years by the demise of Cablevision. At Internet World, he told me the cable operators have been impressed by the emerging technologies that promise to dramatically increase the bandwidth on their existing systems.
Irrelevancies

Inside Chinese Business should be read by any Westerner doing business with Chinese people. Ming-Jer Chen shows the strategic thinking of the extended family that controls most businesses from China, developing "long term customer relationships" and "partnerships" far beyond the common Western rhetoric. The lessons in this book would have saved me much grief in the three years I spent in a Chinese-American company, struggling as an outsider with very different ways. In particular, the sense of self-effacement took me a while to understand.
Wall Street

Has anyone other than DSL Prime realized that SBC payments to top executives in 2001 will break the spirit and probably the letter of U.S. law? As Fortune reported a few months ago, pay over $1M/year can only be deducted from corporate tax if directly based on results. SBC has just had one of the worst years in recent telco history, missing earnings consistently, negative growth in key areas, major layoffs, poor operational performance, and fines from the feds in six different states. Any plan that claims SBC delivered superior performance justifying premium pay is unsupportable. If it's not illegal, it should be.

Siemens ICN networking unit expects to continue losing money through 2003, per Sarah Knight in Reuters. ("EBIDTA positive" has become a new synonym for moneylosing.) That will presumably put continued pressure on competitor's pricing. With $7B in cash they can be patient, and possibly buy other companies as well.

Moody's raised the credit rating of Korea Telecom, who are proving to the world rapidly deployed, low-priced service can be profitable. Their chief DSL competitor, Hanaro, has almost tripled in stock market value. Good some folks are making money.

Control of DSL.net has been acquired by Vantagepoint, per the nominal wording of an FCC filing relating to the financing deal. In practice, David Struwas and Keith Markley continue to manage the company. Ray Allieri explains "Nothing has changed in the way the company in being run and managed on a day-to-day basis. Vantagepoint was an active member of our board previously, and we welcome their continued relationship." DSL.net must be doing something right, because they just got an additional $15M investment from Columbia, Charles River, and the Hunt Family. The two investments total over $30M. This gives them the resources to pick up the business customers from some competitors.

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