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Dude, Where's My DSL?

LAS VEGAS – One of the great mysteries of telecom right now might be this: Where'd all the sales of that DSL equipment go?

Industry boosters say the DSL market is booming, and on a global scale it is gaining in broadband market share.

"DSL is on a roll," says DSL Forum president Tom Starr. "China is red hot. In the United States, we're still in the early stages of the game."

That, in a nutshell, is the problem. While globally DSL continues to grow, with impressive gains in Asia especially, it's still a fairly unpredictable business here in North America, as clearly demonstrated by Adtran Inc.'s (Nasdaq: ADTN) tangle with the dreaded "lumpiness," as discussed this morning (see Adtran Cites Lumps and Bumps in Q3)

Starr cites research from Point Topic Ltd. which says that DSL's global market share of broadband is picking up, and it hit 64 percent in the second quarter of 2004.

But DSL penetration in the U.S. remains low, at only 6 percent, which would seem to indicate that there is plenty of room for growth. Only one problem: Reports from some DSL and access vendors indicate softness. Recent examples include Adtran's earnings, Ciena Corp. (Nasdaq: CIEN) citing a "DSL slowdown" when it experienced a shortfall in its Catena broadband business, and the recent weakness at Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI).

So is it just specific companies that are suffering? Or are bigger trends at work? Basically, three broad theories are circulating about the current slump in North American DSL growth:

Generation Gap
Some analysts and company executives say that the large service providers are now stuck between two generations of DSL – the older flavors including ADSL, and the next-generation products including ADSL2+ and VDSL, which significantly increase speeds.

In addition, the major new DSL initiatives, especially those from BellSouth Corp. (NYSE: BLS) and SBC Communications Inc. (NYSE: SBC), involve new architectures, specifically fiber to the node (FTTN). This requires a new type of gear that is only now in trials, and new growth in the DSL market will spring from this equipment (see Analyst: Copper Is BellSouth's Gold, Bottleneck Blowout, Carriers Prep DSL Wave Part II , and SBC RFP Refreshes Remotes).

With many of the next-generation products now in carrier trials, deployment will begin in earnest in 2005, giving the DSL equipment market a boost. "Almost all the service providers I talk to are in the process of field-trialing ADSL2+," says the DSL Forum's Starr.

Regulatory Gridlock
Here at Telecom '04, which is run by the powerful telecom trade association United States Telecom Association (USTA), there is plenty of chatter about regulations. And many service providers will lead you to believe that they're stuck trying to decide where the regulatory environment is going, and whether to invest in DSL or fiber to the home (FTTH).

A steady stream of service provider executives banged the drum of regulatory reform here at Telecom '04, and although everybody agreed that less regulation is better, there were few details of how to achieve that.

Some equipment vendors say the service providers are having trouble moving on big equipment purchases until they get a clearer direction from the government (see Comcast & Verizon, Sitting in a Tree...).

"Investment has been retarded because of uncertainties over regulation of the access network," says Kevin Walsh, vice president of marketing with Calix Networks Inc. "But why does it have to be either copper or fiber? It can be both."

The DSL Forum's Starr said that regulatory environment is important, but it's not the only factor. He notes that countries where DSL penetration is the greatest – such as South Korea and Taiwan – are fortunate to have both stable regulatory policies and dense population centers, both of which favor DSL deployment.

The Inventory Glut
In this theory, there is a vast oversupply of aging DSL gear, some of which was reported shipped but never deployed. This hurts equipment vendors all around, who must compete with cut-rate prices of glutted gear and have trouble generating new sales in a market awash with excess capacity.

"Extra inventory of ADSL equipment is definitely an issue out there," says Jefferies & Co. analyst George Notter. "It's been reported that there's a mismatch of ports shipped versus sub additions of carriers – you can draw your own conclusions.

All of the Above
Kermit Ross, principal of consultancy Millennium Marketing (no Website), says the DSL market is likely grappling with all three of the above issues. "All three of these forces are at work."

Ross says that sales are shifting as carriers move more aggressively to IP-based platforms that can handle video. "If you think about it, BellSouth has said they want to replace 80 percent of their network with fiber to the node," says Ross. "The telephone companies are focused like they've never been on IP. Conventional ATM-based DSLAMs have plateaued," says Ross.

So what are folks saying about 2005? Not surprisingly, nobody wanted to hazard a guess. Looks like the dreaded lumpiness could continue in the foreseeable future.

— R. Scott Raynovich, US Editor, Light Reading

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lastmile 12/5/2012 | 1:11:19 AM
re: Dude, Where's My DSL? John doe is the consumer
He and his wife and children do not care about:
1.Generation Gap
2.Regulatory Gridlock
3.The Inventory Glut
4.FCC
5.All of the Above
John doe now lives in TX and upto 80 people like him/day are signing up for high-speed fiber optic service @$34.95 per month.
Dude,Where's My DSL?
Sibylle 12/5/2012 | 1:11:16 AM
re: Dude, Where's My DSL? Can you tell us a little bit about this service and provide a link to the service provider's web site ?

Thanks

Sib
=================================================



John doe now lives in TX and upto 80 people like him/day are signing up for high-speed fiber optic service @$34.95 per month.
Dude,Where's My DSL?
lastmile 12/5/2012 | 1:11:15 AM
re: Dude, Where's My DSL? Sib:
Please try this link.
http://www.nytimes.com/2004/10...
jepovic 12/5/2012 | 1:11:15 AM
re: Dude, Where's My DSL? I believe that the US has much longer first-mile copper lines (for some reason, I dunno). This makes DSL much less attractive.

Also, deregulation has been weaker in the US market.
mrbhagav 12/5/2012 | 1:11:14 AM
re: Dude, Where's My DSL?
Anyone interested in a high-level understanding of the relative economics of maintaining a copper plant versus a pure-fiber plant (ie, lifecycle costs) should read the May '04 Bernstein-Telcordia report.

Going ftth conservatively reduces outside plant and network ops costs by 50% easily relative to copper. Additional savings in customer support, truck rolls, etc. Additional savings in manpower (labor) required to support all-fiber relative to all-copper.

The bell companies are not stupid (maybe arrogant, but not stupid). They understand these economics and are compelled by what ftth offers.

Mrbhagav
Half-Inch Stud 12/5/2012 | 1:11:07 AM
re: Dude, Where's My DSL? Jane doe is told by Verison, DSL will be 24.95, so she goes for it, to reduce costs from the Comcast Cable($0 +$5 moden rental).

DSL setup arrives, 2 weeks later the Bill arrives with $54 for the DSL, and 34.95 for the 1st month + $20 !!! in fees, to take $34 to $55 monthly. ARRGH!

Jane and Joe seriusly communicate to each other about how they understood the deal (24.95 or was it 20.95, 29.95?, AND no charges until the DSL is hooked-up). and what/why are these Fees here?

Much happiness results in affirming the understood offering versus the reality. Jane cancels the DSL before ever hooking it up.

Verizon sends warning to turn the phone service off due to unpaid composite bill ($300).

have a nice day
Half-Inch Stud 12/5/2012 | 1:11:06 AM
re: Dude, Where's My DSL? Jane doe is told by Verison, DSL will be 24.95, so she goes for it, to reduce costs from the Comcast Cable($40 +$5 moden rental).

DSL setup arrives, 2 weeks later the Bill arrives with $54 for the DSL, and 34.95 for the 1st month + $20 !!! in fees, to take $34 to $55 monthly. ARRGH!

Jane and Joe seriusly communicate to each other about how they understood the deal (24.95 or was it 20.95, 29.95?, AND no charges until the DSL is hooked-up). and what/why are these Fees here?

Much happiness results in affirming the understood offering versus the reality. Jane cancels the DSL before ever hooking it up.

Verizon sends warning to turn the phone service off due to unpaid composite bill ($300).

have a nice day
palaeozoic 12/5/2012 | 1:11:04 AM
re: Dude, Where's My DSL? Be careful how you interpret that report. While thorough, most of the cost savings result from a packet-based FTTP approach as compared to a circuit-based copper approach. It is service delivery over a packet (IP) layer that yields most of the opex savings, not the nature of the underlying physical media. In reality, packet-based service delivery over copper yields similar savings.
jayja 12/5/2012 | 1:10:50 AM
re: Dude, Where's My DSL? Though Verizon reported to the Fiber to the Home Council that the NPV of life time maintenance/operation cost savings of FTTH vs. copper in new build is $150/subscriber.
Frank 12/5/2012 | 1:10:47 AM
re: Dude, Where's My DSL? "Though Verizon reported to the Fiber to the Home Council that the NPV of life time maintenance/operation cost savings of FTTH vs. copper in new build is $150/subscriber."

None of which, however, reflects any of the offsetting incremental revenues that are achievable using the fiber- or fiber-enabled platforms, both present and future.
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