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Report: DSL Is Profitable

Light Reading
News Analysis
Light Reading
10/31/2002

As incumbent carriers continue to insist that regulatory relief for DSL is the only way to soothe the smoldering telecom industry, a report out this month calls DSL the “profitable way out of a dead-end future.”

i2 Partners LLC’s October report -- “Consumer DSL: Are US Carriers Crying Poor All the Way to the Bank?” -- states that, contrary to many carriers’ claims, DSL is a good business. The Internet access service continues to enjoy double-digit growth rates while the cost of providing the service continues to drop, the report says.

"[A]n omnipresent theme of regulatory 'relief,' obscures the fact that incumbent DSL is about cash flow break-even and will contribute to net income next year," the report states.

This strongly contradicts the murmurings -- or, rather, shouts -- coming from the regional Bell operating companies (RBOCs), which claim that the regulation of DSL puts them at a disadvantage on several fronts, making it a losing business. The main complaint, of course, is that competitive carriers taking advantage of UNE-P resale are basically freeloading on their networks, paying set, low wholesale prices for the use of network elements the RBOCs used to get high retail prices for.

According to the report, however, service providers are at the profit-making threshold for DSL now -- and stand to make a lot of money off the service in the years to come.

“Obviously, it would be nicer for them to have the market all to themselves and only charge retail prices,” says analyst and author of the report, Andrei Jezierski. “But even on wholesale, they’re going to make money.”

DSL is not only a good and profitable business, according to the report, it is also essential to securing the incumbent players’ long-term future. Moving forward, more and more services, including a significant portion of voice, will be delivered through broadband access networks. The report predicts that broadband penetration will ultimately reach 70 percent.

With cable companies holding a 2-to-1 penetration advantage in the broadband market today, the telecom carriers are going to have to give customers a reason to keep their telephone wires, use them more often (and for more services). “DSL is the conduit not to just broadband, but everything else,” the report states, including: “retention of local voice, adding on ILEC-provided long-distance, and provisioning enhanced voice or hybrid PSTN/Internet applications in the future.”

While the cable companies are faring better at deploying broadband than the telecom companies today, the report insists that closing the gap is eminently possible. It will, however, require that service providers focus on their fundamentals, instead of spreading themselves too thin trying to offer all services to everybody.

“Getting more connections should be priority number one,” Jezierski says. “Should they offer services? Sure. Create them themselves? Probably not. Resell them? Yes… Only when they’ve made significant progress [in gaining more connections], should they start looking at other services.”

When DSL was first introduced, most providers took the one-size-fits-all approach. The report, however, suggests that tiered pricing is one of the best ways of enticing people from dialup to DSL. Once consumers have discovered the benefits of broadband at a lower price-point, the report says, they'll be more easily encouraged to gradually upgrade their usage.

Several carriers have already started offering tiered pricing. Back in August, SBC Communications Inc. (NYSE: SBC), the largest DSL provider in the U.S., announced that it would split its DSL pricing into four separate tiers. Covad Communications Inc. (OTC: COVD) and Qwest Communications International Inc. (NYSE: Q) also offer tiered-pricing; and Verizon Communications Inc. (NYSE: VZ) says it has certain tiering in its service offering.

This is a step in the right direction, the report says, but insists that these options have been far from fully explored.

Closing in on the cable companies' lead in the bandwidth market will require "not being distracted by unrelated services or complementary but separate bundling initiatives, nor being confused by one's own political posturing," the report concludes. "Meanwhile, there's a lot of money to be made."

— Eugénie Larson, Reporter, Light Reading
www.lightreading.com

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CarboCat
CarboCat
12/4/2012 | 9:26:07 PM
re: Report: DSL Is Profitable
O.K. I'm just a little frustrated with my new SBC DSL. but
SBC has a self install package developed for the end user (me) to use and the support staff on the other end of the phone line (India or someother TWSH) can only tell you that you must put the CD in your CDROM drive. When asked if PPPoE or DCHP was used the answer I got was huh???!
The 4 tiered system was a brilliant idea. Get everyone in at the low end. The more people you get the slower the system gets prompting folks to move up a level to maintain the connection speed that they signed up for. Problem is if enough people get angy profits go down thru regulation and loss of costumer subscriptions but the books look good this year.
BobbyMax
BobbyMax
12/4/2012 | 9:25:59 PM
re: Report: DSL Is Profitable
With the internet craze dying down, the DSL is not that much proftable. Some of the DSL companies, for example, Covad, is not at all profitable and its chances of being profitable and making up investors losses are unlikely.

The number of wireline throughout the country is declining. Unless some other broadband services ( e.g., multimedia services) are developed, DSL alone would not be very profitable.
rjmcmahon
rjmcmahon
12/4/2012 | 9:25:48 PM
re: Report: DSL Is Profitable
Unless some other broadband services ( e.g., multimedia services) are developed, DSL alone would not be very profitable.
_________________

Listening to execs from South Korea suggest the problem with fraudband is not multimedia technologies, but rather, there exists a shortage of high value content producers.

A partial solution to the content shortage will:

o Reduce bit distribution costs significantly
o Enable open access - giving all equal oportunity to produce and publish
o Support convenient unicast, store-and-forward, delivery of goods
o Gaurantee payments to the producers
o Protect against consumer theft and piracy
o Provide for secondary markets which allow consumers to trade their used goods

Technology and networks which address these issues are a step in the right direction. DSL technology really is nothing more than a bandaid attempt by RBOCs to protect their monopoly, and adding multimedia capabilities does little for their or the monopoly or the above.

The primary goal with DSL should be to unbundle the local loop in attempts to lessen the tax streams of which the RBOCs have become the primary beneficiary. Tax revenues should serve the public interest rather than pad the pockets of those acting in fraudulent manners.
gea
gea
12/4/2012 | 9:25:47 PM
re: Report: DSL Is Profitable
Ah Booby...
Just from the ungrammatical Subject line it's always possible to determine that this was a Booby-started thread.

What do you mean by "the internet craze dying down"? Do you mean people are no longer using the Internet? That usage numbers and subscriber rates are falling?

And you give COVAD (of all companies as your "proof" that 'DSL is Note That Much Profitable' (sic)? How about the RBOCs? Does the massive rollout of DSL by them mean anything in your "analysis"? ("Analysis" in your case is obviously too strong a word..."free association" is probably closer. No wait..."mental regurgitation"...that'sabout it!)

In the end it looks as if you believe that no new technology (ie, after about 1993) is of any use, or ever will be of any use. Was this by chance the same year as your brain tumor?
Scott Raynovich
Scott Raynovich
12/4/2012 | 9:25:44 PM
re: Report: DSL Is Profitable
I've always heard the reason they can't make money is they have to provide installation support... i.e. Grandpa and Grandma calling up with Windows installation issues such as the ones mentioned below. "Where's my .dll? What's that?"

Has anybody seen/heard any numbers of how much support factors into DSL cost?
ImAClone
ImAClone
12/4/2012 | 9:25:39 PM
re: Report: DSL Is Profitable
So I heard that the break-even was something like 2 visits per install. However, it sounds like 5-7 is the average. That's why DSL isn't as profitable as it might have been.

Is this really DSL's fault, the technology, or the execution of the service deployment?

I don't have DSL any more (replaced by cable after a move), but I did have it, and neither the cable nor the DSL customer support staff or installation folks had a clue (or have a clue yet).

All *I* want is someone who can install the stuff correctly, splitter, cable, filter, whatever. They can't even get that right. But they have to get in and out within a certain amount of time, so they punt it to the next visit.

Maybe if these RBOCs would invest in a higher quality install (train their installation and customer support a little more) would actually reap more benefits.

-clone
sgan201
sgan201
12/4/2012 | 9:25:36 PM
re: Report: DSL Is Profitable
Hi Scott,
RBOC has to pay the ISP every months also.. Cable folks can be their own ISP and no open access requirement. They get to keep all the money that you pay..
strands555
strands555
12/4/2012 | 9:25:28 PM
re: Report: DSL Is Profitable
OSPGuy writes: After the [Tennessee] PUC ruled for line card colocation (allowing CLECs to own line cards in an OSP DLC cabinets), rural broadband deployment by Incumbent Carriers (the RBOCs) came to a screaching halt. DSL in TN and other states with similar goofy rulings by PUCs (Illinois), will pretty much be relegated to urban wealthy communities (served by remote DSLAMs, which are very expensive but do not have to be unbundled) The rest of the state will have to wait for Cable Modem. - don't hold your breath. Viva la Competition!

Just one solid example of how current regulations favor cable modem deployment over DSL.

============================

Yes, you are correct: the fact that the RBOCs are greedy monopolists IS hurting consumers. STRICTER REGULATION, with meaningful penalties for withholding technology from the market is what's needed.
OSPGuy
OSPGuy
12/4/2012 | 9:25:28 PM
re: Report: DSL Is Profitable
Take a look at Tennessee.

After the state PUC ruled for line card colocation (allowing CLECs to own line cards in an OSP DLC cabinets), rural broadband deployment by Incumbent Carriers (the RBOCs) came to a screaching halt. DSL in TN and other states with similar goofy rulings by PUCs (Illinois), will pretty much be relegated to urban wealthy communities (served by remote DSLAMs, which are very expensive but do not have to be unbundled) The rest of the state will have to wait for Cable Modem. - don't hold your breath. Viva la Competition!

Just one solid example of how current regulations favor cable modem deployment over DSL.
rjmcmahon
rjmcmahon
12/4/2012 | 9:25:27 PM
re: Report: DSL Is Profitable
Take a look at Tennessee.
__________________

Also, take a look at Nebraska. Learn how they solved the problems associated with rural America and utility services. Their Public Power Districts may be a model for our new information infrastructure.

Unfortunately, the RBOCs don't seem to understand their obligations require them to peform at the highest levels possible, which in turn will allow our country to progress. This also means *every* RBOC staff member has to achieve their full potential. RBOCs hiding behind regulatory issues and making excuses for underperformance (not to mention their monopolistic behaviors and graft payments) does not meet the standards of such performance.

Again, look to Nebraska for some utility leadership:

http://www.nppd.com/index.asp

"Nebraska Public Power District is Nebraska's largest electric utility, with a chartered territory including all or parts of 91 of Nebraska's 93 counties. It was formed on Jan. 1, 1970, when three utilities--Consumers Public Power District, the Platte Valley Public Power and Irrigation District and the Nebraska Public Power System--merged. NPPD is a public corporation and political subdivision of the state of Nebraska. The utility is governed by an 11-member Board of Directors, who are popularly elected from NPPD's chartered territory.

NPPD's revenue is mainly derived from wholesale power supply agreements with 55 towns and 25 rural public power districts and rural cooperatives who rely totally or partially on NPPD's electrical system. By the end of 2000, NPPD will also serve about 75 communities at the retail level. About 5,000 miles of transmission lines make up the NPPD electrical grid system, which delivers power to about one million Nebraskans.

Did you know?

o Nebraska's electric rates are well below the national average.
o NPPD provides homes to bald eagles.
o You own Nebraska Public Power District.
o NPPD protects endangered species.
o Nebraska is a leader in the concept of public power."

http://www.nppd.com/images/tes...
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