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DSL info for  consumers & the  industry.
 

DSL Prime is always looking for news. Email Dave Burstein editor@dslprime.com

DSL Prime - the trade paper of an Internet community


Headlines May 30, 2002

  • Efficient for sale - Not!
  • Kumar Shah displaced at Occam/Accelerated
  • Henry and Henry bring Broadcom back
  • Chip wars
  • The Net Economy, R.I.P.
  • Briefs: Less politics, 2Wire, Verizon, Qwest, Entone, QSC. Denmark, Czech, Sagem, DT, Winfirst, Pierre Garnier, Ron Young, George Hawley, Tut
** You'll find Real World converged solutions for DSL when you visit the Texas Instruments booth #21426 at SUPERCOMM 2002. See how TI delivers Real World choices for the industry's highest performing, tightly integrated, most interoperable DSL platforms worldwide.
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"We need ... speeds of 10 to 100 megabits per second available all across the country." Joe Lieberman, running for President, sponsored by Technet. George Bush refused to endorse the Cisco/Intel call for fiber, so they turned to the Democrats.

    Henry Nicholas of Broadcom can't jump half-naked into mosh pits anymore - a billionaire could get sued he told Fortune. He grew too tall to fly fighter jets, got bored when Reggie Jackson courted him to buy a baseball team, and already has a building named for him at UCLA. So he and Broadcom partner Henry Samueli are returning to DSL, where a decade ago they designed some of the first chips. John Cioffi and Kim Maxwell beat them out with DMT ADSL, although Nicholas will still tell you CAP ADSL is a better choice. He spent hundreds of millions for the chip designers of E-14, and he doesn't intend to lose again. But neither do Armando, Faraj, TI or ADI. Chip wars, anyone?

    AT&T's price increase for cable modems - a profitable service whose costs are coming down - is yet another proof that competition isn't working with only two players. The three blind judges who remanded line-sharing to the FCC last week need to re-read their Posner, as well as any decent high-school economics text. Even more worrisome is Mike Armstrong's threat to put a tax on streaming media, as much as 25 cents per album and $3 per movie. That tollbooth would break the fundamental end-to-end design of the Internet, as well as Mike Powell's dream of new media. Eric Rabe of Verizon has it right, that AT&T surcharges  "Endanger the widespread adoption of broadband and, therefore, the development of rich, multimedia content and services"  The music industry, fighting for smaller royalties, is up in arms, and the Justice Department is starting to look at the issue.

Hit "reply" and put "subscribe" in the subject, and you'll be added for free. Or "Unsubscribe"

** Insure the success of your ADSL+POTS line card design by choosing Infineon's GEMINAX family of transceivers. The ADSL/POTS version can fully support 8 integrated POTS/ADSL ports with integrated splitter functionality. Take advantage of a proven reference design that assures compliance with a full-suite of worldwide standards for POTS and ADSL while eliminating bulky and costly splitters. The data-only chipset also offers unparalleled power/density/performance for DSLAM applications. For an on-line tutorial, go to http://www.enen.com and click "archived" for Challenges of Designing an Integrated POTS/ADSL linecard. For product information, visit http://www.infineon.com. (ad)

Efficient for sale - Not!
More layoffs already set
A Reuters story circled the net, fast. Efficient was for sale. The denial, as usual, did not catch up. They've cut costs, and presumably staff, by 35%, but are not selling the group. Besides the strategic possibilities, the bids received were apparently unappealing, possibly forcing a further writedown of Siemens $1.5B investment. 

     James Hamilton has a tough job: delivering a product for Efficient/Siemens that can command a premium price and justify a substantial staff and R&D effort. Otherwise, he will continue losing market share to Asian competitors whose low prices are driving the market. Efficient biggest customers, including SBC, are looking for great pricing for a feature-rich product.

    Hamilton told me "Margins will continue in Ethernet routers and combined USB/Ethernet modems, and we're pulling away from the low end. Wireless home networking is doing well for us at retail. DSL is a growing business, and we're staying in."

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Kumar Shah displaced at Occam/Accelerated
Bob Howard-Anderson the new CEO
Kumar Shah brought Occam from unknown startup to a vendor on short lists, in a crowded DLC market where Lucent and Nortel struggled. That's a remarkable achievement, especially considering the product is barely out the door. The product is interesting: customer face, it's the first to deliver the potential of the Infineon voice/data chipset, while backhaul has automatic failover redundancy, ideal for a telco. They may already have some wins with smaller telcos, and their recent $29M cash holding is encouraging. The stock market has been discouraging; the $.25 stock price means they will probably lose the NASDAQ listing acquired with Accelerated Networks.

Howard-Anderson came recently to Occam from Procket, the $272M semi-stealth new switchmaker, also backed by USVP. He tells us he's very optimistic about the product and the market.

A rival a while back explained why folks like Shah were crucial. "Some folks understand the real problems of telephony, like space in the remote cabinet or training the field techs. When a telco execs sees you 'get it', they open up and start to listen." Shah will remain on the board and a consultant to the company.

** Don't know where you're going? You'll probably end up in the wrong place - Get FREE directions! If you are a technical manager in a service provider organization, a complete network diagram poster that maps out the migration to the new voice infrastructure is a must-have reference tool.  This offer brought to you compliments of General Bandwidth.  General Bandwidth's flagship product, the G6, supports a number of critical applications that form the foundation for the evolution from the circuit switched network to a packetized network. click here for your free map to the new voice infrastructure: http://www.genband.com/email/index.asp (ad)

Henry and Henry bring Broadcom back
DMT no longer heresy in San Diego
Nicholas and Samueli (his UCLA prof) designed the first HDSL/T1 chips that drove Pairgain to the top of the industry, then developed CAP ADSL for consumers. John Cioffi and Kim Maxwell at Amati urged a more complex coding scheme, DMT, but no one thought it would prevail in a key test, a Bellcore bake-off. (Maxwell already was looking for his next job, his partner tells me.) CAP/QAM worked fine for VDSL, as 50,000 lines in Phoenix has proven.

     Living (very) well is the best revenge, of course, and Broadcom has made $B's from cable modems, ethernet and other chips. Intel got nowhere with a patent attack, and Nicholas is gunning for a showdown in communications chips. Broadcom spent several hundred million last year for E-14, essentially an Alcatel DSL design team in exile, and have been promising to be a major player "in a few months" ever since. Expect very dense, multi-function chips priced for high volume sales. Everyone is talking to them, but few customers have signed on.

Chip wars
Everyone's coming to SUPERCOMM

     Until I hear from customers, I won't know what's fact and what's hype, but here are some of the key announcements.
  • Richard Sekar of Ikanos didn't expect any revenue till 2003 for his EFM/VDSL DMT chips, but Sumitomo, Hyundai, and Extreme have signed on and are beginning trials in Asia. Extreme bonds four wire pairs to deliver 100 meg for 2,500 feet - a natural alternative to digging up streets for fiber. 
  • Infineon's field-proven CAP/QAM VDSL will be demonstrating interoperability with Metalink in Atlanta. Metalink has replaced Broadcom in the new generation of VDSL gear from Next Level.
  • Infineon's voice/data ADSL chip was chosen by Alcatel Petaluma, world's leading DLC vendor. Both Alcatel and AFC will be showing high density linecards for remotes based on denser chips.
  • Next Level has already demonstrated the 10 meg performance of the Globespan ship delivering two video streams. ADI, Globespan, Centillium and others are all releasing 10 meg ADSL chips with claims of higher density, greater reach, lower power consumption, and reduced cost.  These are the chips that modem vendors were counting on for their aggressive bids early this year, when million modem contracts went below $50. More recent modem contracts are choosing more features (testing, USB/Ethernet combos, etc) which are driving prices up slightly. BellSouth is rumored to be paying $70 in the new contract. 
  • Similarly, all the main players are delivering dense CO chips. The Samsung win in Taiwan was based on the efficiency of the new ADI design. Result: the DSL chips are not the limiting factor in most designs. Instead, other components become crucial, such as the new Excelsus 96 channel 1U splitter unit.
  • Centillium is getting real competition for Japan's Annex C business, with Globespan and ADI shipping chips. The resulting lower price means Yahoo BB is likely to switch from ANnex A to Annex C for improved performance.
  • LSI Logic's DSL division is back from a near-death experience, as the company is convinced their powerful new integrated chips will find strong market share.
  • Add $10 to the bill of materials, and a basic bridge modem becomes a home router, supporting NAT, DHCP, firewall and more to four ports on the back. That's a live quote from a major chip vendor on the new generation. The digital end of the chip needs more processing power and you need to add flash and SRAM, as well as connectors. The complete package (100,000 quantities) adds perhaps $10, including the necessary software.
  • Globespan's Virata buy means they can bundle the software, as does ADI. Infineon and others go to Jungo, an Israeli company with an interesting Linux-based software suite; some Valley IP companies, and new vendors from India and China.
** Reduce operational costs of DSL  conduct loop testing automatically and remotely. mPhase’s line of “intelligent” loop management products automatically and remotely bypass traditional POTS Splitters. These “intelligent” products are hardware based and save costs by eliminating truck rolls and expensive cross-connect equipment.  The iPOTS™ is an all-in-one solution including the “Intelligent” bypass functionality with a standard POTS Splitters and the mPhase UniversalBypass™ is a module enabling the remote bypass functionality with any manufacturer’s POTS Splitter.  
For more information visit www.mphasetech.com or contact Peter Gasparini at sales@mphasetech.com. (ad)

The Net Economy, R.I.P.
Another great journal is gone
Carol Wilson's The Net Economy was an extraordinary magazine, consistently bringing fresh opinion and original reporting. Ziff-Davis re-financed, but that wasn't enough to keep it going during an advertising slump. America's Networks is taking over the subscription list; if Advanstar has vision, they will also take on some of the reporters. I have learned from, and been scooped by, Paul Coe Clark, Dennis Mendyk, Joe McGarvey, Jonathan Blum, Tim Kridel, Denise Culver, Dawn Bushaus, Meg McGinity, Rachael King, Liz Miller, Sarah Schmelling, and Christine Zimmerman.

    The loss diminishes all of us in telecom.

    Email:
  • "Less politics and more technology would draw a larger audience," wrote a Verizon reader as he cancelled his subscription. He's right: the politics is boring, although important. I'll move some of the items to the end. But the biggest question in U.S. DSL is why prices are so high, and deployment on hold at SBC and Verizon. Those two companies will proudly tell you they've solved the technical and cost problems - so I've got to look at the politics.
  • "Customers hadn't been asking me about fiber upgrades for DSLAMs, but your report that Alcatel 7300's can be easily converted got me thinking. The equipment telcos buy from me today needs to serve them for 5-10 years. The ability to add optical could soon be a checklist item for them."
Briefs:
  • 2Wire has a well-earned reputation for ease of use, which we confirmed by installing a new wireless gateway. Worked right away, on both a Mac and a PC. Thanks, Brian and team.
  • Verizon is working hard to improve operations, with many orders now processed in a week. They have developed an XML based system for communicating with the modem and identifying problems, which may soon be offered as an industry standard. Motive is supplying customer service software, working with Westell, a key Verizon modem supplier.
  • Ed Pinkham's latest numbers show Qwest has wired only 30% of central offices, as financial problems have crippled the company. Verizon and SBC are at around 40%, while BellSouth is approaching 70%.
  • Entone's new video server is designed for IP/Ethernet rather than ATM, which should be particularly appealing in the Chinese market, much of which leapfrogged to pure IP.
International:
  • QSC in Germany will offer 8 voice channels over DSL in most major German cities this summer. With  9.6M Euros in Q1 sales and over 100M in the bank, they have some of the best prospects among European CLECs.
  • 200K lines of equipment are on order for Denmark.
  • Czech ADSL is starting in 100 cities, but the telco is limiting residential service to protect dial-up revenue, according to Reuters.
  • Sagem, whose ISDN modems I remember fondly, is expanding in DSL in France, using ADI chips.
  • DT is using more USB modems, including a large volume from ECI which is holding market share better than expected. DT last year added Alcatel to their supplier list, lighting a fire under Siemens, but Alcatel hasn't seen heavy volume so far.  I haven't seen DT Q1 DSL subscriber numbers, and believe they were disappointing. Easiest way to boost EPS is to drop capex, and they are under pressure.
  • A correction: Jetstream Korea trials were at Hanaro, not KT.
Competition:
  • Cable overbuilder Winfirst is confident of finding a buyer in bankruptcy, as Clint Swett in the Sacramento Bee reports they will remain in Chapter 11. If the D.C. court gets its way, difficult overbuilds are the path to competition.
People:
  • Pierre Garnier's Everbee is introducing the "Bump in the wire" network processors at SUPERCOMM. They are optimized for line speed security processing up to 100Mbps full duplex. He also plans a cost-effective 10mbps unit. He should have an easy time persuading folks to visit the company, not far from the Paris Opera. When he left Alcatel Micro's DSL division, they claimed a 60% market share; how much of that will transfer to STM remains unproven.
  • Ron Young is now leading marketing at Procket. DSL folks know him from Diamond Lane/Nokia, before helping start Yipes. 
  • George Hawley, hard at work on his next startup, came to the Connectivity conference, where I asked him whether switching cost/performance improvements will slow down with the tech bust. "Absolutely not! Folks like me have already designed the next generation, with 200-400% improvements, and are close to production units. Valo is working on the next generation, with performance easily ten times today's units in the field, and an optical design that will extend that further."
Stock market:
  • LeRoy Kopp, who has a great performance record in small cap investing, increased his holdings in Tut to 31%.
Stories stewing:

       Covad, per the SF Chronicle, is still on track to drop U.S. prices 20%, which would give the FCC a good reason to maintain linesharing.
        AFC's Telliant (the AccessLan box) shows where DSLAMs are going - 15 gig backplane, built in subscriber management, smarts to control the network from every CO, and a fiber upgrade.
       50 customers is all it takes affordably "Broadband-enable" a CO, according to Broadband4Britain, a grassroots campaign with thousands of supporters.
        Teradyne submitted an interview with BT on the effectiveness of testing, but the other promised articles are still to come, so the special issue on test is a few weeks away. The British results with Celerity were exceptional.

Headlines May 19, 2002 ·

Paradyne's amazing Jetstream buy: $3M
·Fiber networks from your Alcatel DSLAM
·Your FCC comments make a difference
·Xbox Live! Microsoft broadband coming this week
·North Carolina: smart politicians drive near-universal service
·Editorial: Near universal service is profitable
·Ed Pinkham looks at deployment, No more "three mile barrier" Better regulation through ignorance?, Westell sued Hyperedge, weak cable finances, Bill Daley

** As a result of its leading DSL interoperability efforts and technical support, Texas Instruments ADSL chipsets have been selected by Westell for its next generation of WireSpeed residential and SOHO products. The three new products of Westell's WireSpeed family will integrate TI's AR5 ADSL chipset technology to provide the high performance, self-install capability and interoperability required by leading operators, allowing them to reach more customers and provide easier installs to increase ADSL deployments.Visit http://ad.doubleclick.net/clk;4219792;6989349;h?http://www.ti.com/sc/dslgateway (ad)"

"I drove eight hours to explain why we need broadband in every part of this state" Just one of the many demands for broadband at the 706 hearing.

There's a hunger out there for broadband, not a shortage of demand. Deliver price and quality, and the customers are signing up in droves: 300,000 in Japan in April alone. In Greenville, speaker after speaker told us broadband was crucial for the rural economy. We were 179 Southerners, including Commissioners Kevin Martin of the FCC, Lila Jaber of Florida, Jo Anne Sanford of North Carolina, and one Northerner, Dave Burstein of New York. (They were very gracious, even giving me a round of applause.)

Martin grew up in a small town in North Carolina, on a gravel road. He was very impressed by the visit to the telemedicine center. "When I was a kid, it took three days to go to the city to see an asthma specialist." Martin believes in deployment "to all Americans" If not, the Commission should "take immediate action to accelerate deployment."

Martin and Powell are approaching a year in power. When they came in, Verizon and SBC were planning to wire 80% (Whitacre) and 90% (Seidenberg) by the end of 2002. Latest plans are less than 65% - far behind Germany, Japan, Canada - or BellSouth. Some of the smartest conservatives are catching on: monopoly power means the market isn't working. U.S. News just reported "a lack of meaningful competition leaves the United States with broadband costs 50 to 75 percent higher than in other industrialized countries."

May 22nd, the FCC will meet with their peers from Canada and Korea. Their deployment is far ahead, their prices lower. Instead of the usual lovefest, I hope they ask some hard questions. Montreal is a beautiful city, but I don't want to move north just to get decent communications. The U.K. will be there as well: OFTEL has just done an in-depth analysis proving a $20 wholesale price for DSL is profitable for BT. U.S. rates of $33-35 are outrageous. http://www.oftel.gov.uk/publications/broadband/llu/index.htm

Hit "reply" and put "subscribe" in the subject, and you'll be added for free. Or "Unsubscribe"

** Insure the success of your ADSL+POTS line card design by choosing Infineon's GEMINAX family of transceivers. The ADSL/POTS version can fully support 8 integrated POTS/ADSL ports with integrated splitter functionality. Take advantage of a proven reference design that assures compliance with a full-suite of worldwide standards for POTS and ADSL while eliminating bulky and costly splitters. The data-only chipset also offers unparalleled power/density/performance for DSLAM applications. For an on-line tutorial, go to http://www.enen.com and click "archived" for Challenges of Designing an Integrated POTS/ADSL linecard. For product information, visit http://www.infineon.com. (ad)

Paradyne's amazing Jetstream buy: $3M
Versatel, Network Telephone, AT&T?
The equipment works, the customers are in production, the engineering team re-assembled as Paradyne's new Raleigh lab. Network Telephone has been serving thousands of lines already. AT&T has completed all the technical trials and is just waiting for a corporate decision to stop talking about competition and prove they mean it. (If AT&T doesn't open the 1700 NorthPoint COs soon, it will be very hard to take seriously anything they say in D.C.) Paradyne's Sean Belanger recently spoke of possible acquisitions, and Scott Eudy told me several other companies are available for remarkably little. Paradyne has to be cautious.

Jetstream was worth $1B two years ago, competing with CopperCom to lead a market USA Today reported as "Coming soon" They quoted Merrill's "It's really getting ready for prime time now. The market is significant." "Clearly this is the direction the market is moving in," US West's Jeremy Story added. The paper continued, "The Bells are generally enthusiastic about the service, which could make their networks less congested and cheaper to run." DSL Prime agreed. We were all wrong, of course; now, VoDSL is a niche service for competitors, while most of the telcos have decided to wait for Voice over IP in 2004-5.

** Real system solutions to real network challenges. The Total Access System from ADTRAN offers amazing new ways to capitalize on existing local loop infrastructure in the face of increasing competition and changing service demands. Whether you’re considering DSLAMs, next-generation DLCs, remote terminal retrofit, voice concentration, fiber distribution, integrated access, Voice over DSL, M13 multiplexing, or any number of high-speed digital local loop technologies, ADTRAN Total Access is the only solution you need.For a free white paper, visit http://www.adtran.com/dslp042502. (ad)


Fiber networks from your Alcatel DSLAM
Alcatel can support fiber on the 7300
Visiting Alcatel in Raleigh, I noticed the fiber gear looked just like the DSL equipment. Essentially, it's the same box, and the software is not far away to make them compatible. I believe the AccessLan box from AFC will have similar capabilities. Current generation DSLAMs from Alcatel, Lucent, and Copper Mountain have robust backplanes capable of supporting gigabytes of traffic and controlling the flow at the IP layer. They can handle VDSL rates of 20-50 megabits, and fiber service that's even faster.

Ross Ireland of SBC told me "I never want to put active equipment in the field", and Verizon too believes fiber is the ultimate solution. Both are moving very slowly however, because the companies are cutting capex to manipulate earnings and D.C. Wall street is catching on and has cut a third off the value of the telcos.

** Don't know where you're going? You'll probably end up in the wrong place - Get FREE directions! If you are a technical manager in a service provider organization, a complete network diagram poster that maps out the migration to the new voice infrastructure is a must-have reference tool. This offer brought to you compliments of General Bandwidth. General Bandwidth's flagship product, the G6, supports a number of critical applications that form the foundation for the evolution from the circuit switched network to a packetized network. click here for your free map to the new voice infrastructure: http://www.genband.com/email/index.asp (ad)

Your FCC comments make a difference
"These are tough problems, and we haven't decided"
"You'll be amazed how many people are reading the comments. Some are engineers, others attorneys. Keep them short, focused and clear to have the most impact" an FCC official told me. "If your input is well thought out, we're going to look at it." She reminded me that individuals, not just corporate attorneys, are encouraged to meet with the relevant FCC officials while the proceeding is still open.

** DIRECTV Broadband and TI collaborate to deploy voice-enabled DIRECTV DSL(tm) gateways to residential consumers. Deployment of the of the gateways, which will begin in late 2002, provide DIRECTV Broadband with the ability to launch Voice over DSL services to its customers. TI technology will provide for home networking and two digital voice lines - enabling DIRECTV Broadband to offer subscribers the delivery of voice and DSL services through the DIRECTV DSL residential service nationwide. For more information http://ad.doubleclick.net/clk;4093836;6989349;g?http://www.ti.com/sc/directvdsl (ad)

Xbox Live! Microsoft broadband coming this week
Sony and Microsoft fighting it out in Las Vegas
Microsoft was scheduled to drop the price to $199 Monday, so Sony went to $199 last Thursday. Monday's announcement will be Microsoft's dedicated online game network, requiring a cable or DSL connection. Gamers are as much as 10% of the U.S. broadband market, and millions in Korea are online gamers.

The potential is enormous, although probably in 2003 and later. The Xbox is still far behind Sony. "The die has been cast in this generation, and we know Sony has won," John Riccitiello, the president of Electronic Arts, told the Times. The game makers are mostly backing Sony because Microsoft is demanding to control online play and profits. Number 1 Electronic Arts announced Madden Football online for Sony but not Microsoft. CNet's David Becker reports online versions due for "The Sims," "Star Wars Galaxies" and "EverQuest II."

"Microsoft is already committed to staying in the game even if it loses billions of dollars," Dean Takahashi said in the Seattle PI, where Dan Richman predicts Sony game prices will drop to $39.

** Reduce operational costs of DSL conduct loop testing automatically and remotely. mPhase’s line of “intelligent” loop management products automatically and remotely bypass traditional POTS Splitters. These “intelligent” products are hardware based and save costs by eliminating truck rolls and expensive cross-connect equipment. The iPOTS™ is an all-in-one solution including the “Intelligent” bypass functionality with a standard POTS Splitters and the mPhase UniversalBypass™ is a module enabling the remote bypass functionality with any manufacturer’s POTS Splitter.
For more information visit www.mphasetech.com or contact Peter Gasparini at sales@mphasetech.com. (ad)

North Carolina: smart politicians drive near-universal service
BellSouth is wiring North Carolina after political deal
All credit to BellSouth, which has put DSL in nearly every North Carolina CO and 1400 + remotes, with another 700 or so scheduled for upgrades in 2002. Ed Pinkham's numbers dramatically confirm what the company has been claiming, a much wider deployment than the other U.S. Bells. But North Carolina is a special case - they are deploying close to everywhere. Why? I asked on my trip, and got the same answer from three insiders.

BellSouth made the move because a state committee was ready to recommend the state step in anywhere BellSouth did not offer service. Gov. Hunt appointed Erskine Bowles, who was strongly backed by rural North Carolina on this issue. The happy result: a private company, inspired by government action, is making North Carolina one of the most wired states in the nation. The residents served by Verizon and Sprint are not doing as well, however.

Competition and the free market are great - when they work. Rural North Carolina, meanwhile, is losing tens of thousands of jobs in tobacco and textiles, beautiful places fearing depopulation as the economy lags. They must not be left behind. I'll be writing more about some of the remarkable folks I met.

Editorial: Near universal service is profitable
Between 80 and 95% of all customers can be profitably offered DSL, as BellSouth (70% plus already, planning 78% yearend), Deutsche Telekom (80%+ already, 90% coming soon), KT, NTT, and Belgacom (100% of COs) are proving, without need of a government subsidy. My own calculations, and Telecom New Zealand's, find the breakeven point of a DSLAM/DLC at no more than 50-60 customers, if the fiber backbone is already in place. That means France Telecom and the U.S. giants are misleading the public, claiming that going beyond 60% or so needs "special incentives". 75-90% can be served from existing COs and DLCs; technologies already in the field (72,000 foot repeaters, Catena SLC upgrade cards, incredibly cheap small DSLAMs and DLCs) can serve nearly everyone at reasonable cost.

"Bringing advanced services to all Americans" is Mike Powell's laudable goal, and SBC's Whitacre 2 year old commitment for his 1/3rd of the U.S. It's practical, filling in occasional coverage gaps with satellite or wireless. Universal service is the ideal, and any developed country can easily come close. The only argument against "universal broadband service" is the cost; there is no reasonable argument against universal broadband "where economical" or "where profitable", which would, with honest marginal costing, cover at least half and probably more, of those currently unserved. Washington and other regulators may have been deceived by old or deceptive data - time for a little technical excellence on their part, and honesty from the telcos.

Email:
·Rich Persaud picked up the Bell Canada streaming media tax item ($3-5 per movie, $15/month for a regular radio listener) and brought the discussion to Dave Farber's list. Dave Akin pointed out the ambiguity of the SBC role, despite being the largest shareholder. "To all in Canada, it seems evident that SBC is trying to wash its hands of Bell. The mere existence of an SBC equity stake in another telco shouldn't suggest that their corporate strategies are similar." SBC has the right to force Bell Canada to buy them out at 25% over the market price, a tempting prop to earnings. That put, however, places enormous pressure on Bell Canada to pump up the stock price by over-emphasizing short term earnings. So they are hurting their competitive position by raising prices, cutting capex and staff excessively, and risking their political support by erecting a toll barrier on the Internet. I think that kind of monopoly thinking is wrong in the long run.
Briefs:
·Ed Pinkham's article makes the corporate strategies clear. Verizon and SBC have wired the larger offices (5,000 lines and above), and done little for the smaller offices or remotes. (SBC cut Pronto at a few thousand.) BellSouth and many small independents are actively wiring the smaller offices as well as many remotes. Sprint and Qwest are far behind. If all the companies emulated BellSouth, the U.S. would be three-quarter wired by the end of this year. More at · http://www.dslprime.com/a/pinkham_deployment.htm
·DSL Prime has repeatedly calculated profits begin at about a 5% take rate for a thousand home office. Verizon and SBC have similar numbers, and will eventually get back on track. As equipment becomes cheaper, even the smaller remotes become profitable.
·Bill Rodey at the DSL Forum in Chicago will explain that technology has eliminated the "three mile barrier." Repeaters and field units are now tested and affordable - DSL Prime previously reported telcos could add serve more customers, using repeaters, at an additional cost lower than their typical customer acquisition. Sorry I won't be in Chicago - Bill's got a strong presentation.
·Better regulation through ignorance? The FCC has a proposal to dramatically reduce the information collected from the phone companies. NARUC filed a strong opposition, and my instinct is we need more data, not less. Ed Whitacre's favorite complaint is the "3 million" facts SBC has to report, and Kevin Martin points out that much of what they collect is unhelpful. Martin made the additional point that the volume of data is not the key. He lamented, however, that some of the most crucial information is lacking.
·DSL Prime thinks some of the info needed would include basics, like the inflation rate in basic telephone service. That companies are laying off employees and cutting capex is pretty good evidence the cost of providing service is dropping; proof of that fact would be explosive to ratesetting. The FCC shold also do detailed comparisons of rates across states and national boundaries. I haven't been able to get details of DSL deployment from the companies, profitability of telephony by state, and many other primary pieces of information. For financial analysis, I (like Alan Greeenspan) would like to know more about option value. In addition, no one is checking the basic financial reporting of the major telcos - I've detected material mistatements, that FCC staffers should have caught as well.
·Westell sued Hyperedge for patent infringement, calling attention to how Hyperedge is winning market share. Hyperedge responded that the patent involved was both obvious and preceded by prior art. In today's real world, patents discourage innovation more than protect it. A dozen companies claim key DSL patents, most of which would be invalidated if they ever went to court. Prudently, few are suing.
Competition:
·Cablevision has been at best marginally profitable for the last five years; Cox barely ahead on operations, Comcast had an operating loss the last two years. AT&T cable and TimeWarner cable generally lose money. The market gives them a market cap of over $200B. Rich Bilotti of Morgan Stanley thinks the companies are strong, telling the NCTA “Focus on your operations, continue to drive your operations, and you know what? Wall Street will eventually get around to understanding that you have a really good business.” Absolutely guaranteed, Bilotti knows more about likely market prices than I do - the market, at least in the short term, doesn't follow my analysis. But that suggests there's still room for the cable bubble to burst, which means weaker competition for broadband. Adelphia was considered a healthy company very recently.
People:
·Bill Daley at SBC needs an intense tutorial on the telephone business, or he'll continue to sound disingenuous at best. He attributed SBC's layoffs partially to "excessive regulation." Regulation is much reduced from previous years, and anyone who claims Mike Powell's FCC is a strong regulator is just proving their ignorance.

Headlines May 10, 2002

  • No Canada! Bell Canada reverts the Internet
  • Sell-install for business
  • Covad's smart, gutsy price drop
Briefs: Focal, Myrio, Zoom, Walter Chen, Matt Davis, Verizon/SBC down $100B
** As a result of its leading DSL interoperability efforts and technical support, Texas Instruments ADSL chipsets have been selected by Westell for its next generation of WireSpeed residential and SOHO products. The three new products of Westell's WireSpeed family will integrate TI's AR5 ADSL chipset technology to provide the high performance, self-install capability and interoperability required by leading operators, allowing them to reach more customers and provide easier installs to increase ADSL deployments.Visit http://ad.doubleclick.net/clk;4219792;6989349;h?http://www.ti.com/sc/dslgateway (ad)"Canadians must share the responsibility of making sure Canada remains innovative and competitive." Industry Minister Allan Rock      Bell Canada shot an arrow at the heart of the Internet, levying a $3-5 toll on a streaming movie and a $2.50 surcharge on a regular radio listener. They raised their basic rates 13%, and tacked on a surcharge of $7.90 (Canadian) a gig after 5 gigabyte. For all but the heaviest users, they still are far cheaper than Verizon or SBC, at about $31 U.S. compared to $49 down here. Kudos to them for introducing a low price tier, joining cable companies in the $17-25 "AOL Killer" at low speeds (128K). But protecting their own video products is the kind of

    Covad's price cut makes business sense - $40 is still far above rates Germany, Canada, and Japan believe profitable, and similar to England and France. But it has a second agenda - can Mike Powell kill off the last competition to the bells when they are saving consumers money? Smart move.

** Real system solutions to real network challenges. The Total Access System from ADTRAN offers amazing new ways to capitalize on existing local loop infrastructure in the face of increasing competition and changing service demands. Whether you’re considering DSLAMs, next-generation DLCs, remote terminal retrofit, voice concentration, fiber distribution, integrated access, Voice over DSL, M13 multiplexing, or any number of high-speed digital local loop technologies, ADTRAN Total Access is the only solution you need.For a free white paper, visit http://www.adtran.com/dslp042502. (ad)

    DSLcon is this week in San Jose, where code DP342 was good for a $200 discount, which may not apply on-site. I'll be in North Carolina, at the Federal-State 706 Conference with Martin of the FCC, state regulators, and some innovative users of the Net, focusing on increasing U.S. deployment. Week after, the DSL Forum is in Chicago, with some very welcome worldwide growth numbers. (Subtract Verizon & SBC, and DSL is way ahead of cable.) I'll be in Laguna Niguel for Vortex, asking John Chambers, Bob Pepper, and everyone else "what will it take to make Technet's 100M fiber dreams real?" Then I redeye to Boston, for the Connectivity group of Internet thought leaders. Dave Reed, who wrote the original paper on e2e, is just one of the presenters. I can still get a few folks in as "speaker's guests" - email me if you don't have a company to pick up the tab.  http://www.pul! ver. com/connectivity2002

Hit "reply" and put "subscribe" in the subject, and you'll be added for free. Or "Unsubscribe"

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No Canada! Bell Canada reverts the Internet
Massive surcharge on audio and video - except company's own
The great fear among Internet pioneers is that large companies will carve out subnets, blocking content from others. SBC has threatened that many times, the cable guys already do that for video, and now Bell Canada is cutting off the future of the Net by a ridiculous over-charge on high-speed traffic. $7.90 (C) per gig is about ten times the real cost of the traffic load, based on publicly available figures for transit costs from Band-X, capabilities of the DSLAMs they are buying, dark fiber costs, etc. (My estimate, but Bell Canada refused to provide detailed numbers on what their costs were. Historical costs were higher, but today fiber, routers, and all the other costs have come down dramatically. Pricing for 2002-2004 should be a tenth what BC is charging.

    However, common sense shows Bell Canada knows this supportable by costs. Bell has announced plans to deliver video on demand and other services, which are economically unsupportable at these prices for transport. Because the programming must be paid for, marketed, served, and billed, they can't pay more than 25% of the total for transport, and struggle unless that comes down even lower. Unless Bell intends to charge $12-15 for every movie in their VOD  offering (which they won't), they are working with an internal number a small fraction of what they want to charge other users.

The cheap tier
Bell Canada also released a $21 service at 128/64K, matching plans from the cable companies. Cable companies in the U.S. have been experimenting with similar tiered pricing. This is the "AOL killer" service, soon likely to be widespread. The U.S. bells have not demonstrated any ability to respond if it spreads here.

Economic proof of monopoly
Basic economics give you tools to recognize monopolies. In a competitive market, supply and demand rules, and no company can maintain prices far above costs. With market power, you can price to the value received by the customer, often (as in the U.S. bells) far above what a competitive market would provide. "We and the cable guys should both raise our broadband prices." a telco CEO recently commented, and that's exactly what we are seeing here. Mike Powell makes the point that "Monopoly is not illegal", but monopoly pricing is against the public interest. If the signaling was overt, it probably was illegal. When you see pricing like this, it's time to look for a smoking gun.

A violation of NAFTA
Bell Canada owns TV networks, a satellite service, and newspapers. They are actively assembling programming, they intend to favor over the network. This "audio/video" surcharge has the effect of blocking alternate programming coming over the net. That actively discriminates against Intertainer, Canal, Sony, or the many other video services developing. The cable companies have always blocked most programming - the internet does not need "walls around gardens."

Should San Antonio control the Canadian media?
SBC and "Cowboy" Ed Whitacre are BCE's largest stockholder, controlling 20%. They shouldn't have this kind of influence over what Canadians can watch. They shouldn't have that kind of control over what Texans watch, either. Free speech belongs only to those who own a printing press, and the Internet until now has been the most democratic press ever invented. We need innovation, not old monopolies trying to control the future.

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Sell-install for business
BellSouth $79 business service aims for profitability
93% of home customers install without a tech, and presumably the folks installing office systems are at least as competent. So BellSouth now allows them to self-install and save money.  Basic asymmetric service is $79, with a 256K uplink limit. Faster uplinks are steeply more expensive at $199 for 384K max and $219 for 512K max.  Eric Fogle of BellSouth detailed for me a while back the steps they were taking for reliability, and their ratings on DSL Reports are the best of the U.S. bells. They give no guarantee on service quality, trying to protect their T-1 base.

     BellSouth did an excellent job providing DSL details on their website. Upfront costs are clearly spelled out, the modems (Efficient) and routers (Netopia-Cayman) described, and a list of other equipment tested compatible provided. Symmetric service is generally provided over ADSL circuits, rate-limited; they are testing G.shdsl, which Verizon has promised to deploy later this year.

** DIRECTV Broadband and TI collaborate to deploy voice-enabled DIRECTV DSL(tm) gateways to residential consumers.   Deployment of the of the gateways, which will begin in late 2002, provide DIRECTV Broadband with the ability to launch Voice over DSL services to its customers.  TI technology will provide for home networking and two digital voice lines - enabling DIRECTV Broadband to offer subscribers the delivery of voice and DSL services through the DIRECTV DSL residential service nationwide.  For more information http://ad.doubleclick.net/clk;4093836;6989349;g?http://www.ti.com/sc/directvdsl (ad)

Covad's smart, gutsy price drop
$40 consumer service promised
Charlie Hoffman is going to drop prices 20%, he told Todd Wallach of the SF Chronicle. With the network in place, it costs Hoffman between $12 & $20 for each additional customer, leaving generous profit margins. Covad has always given better service than the Bells, but the gap is narrowing. BellSouth was always pretty good, while Verizon and SBC have considerably improved.

     This puts the question straight to Mike Powell: do you still want to force Covad out of the consumer business, if they are bringing down consumer prices? Two of Powell's proposals would do just that: ending line sharing, and not guaranteeing economic access to 25% of the customers served by remote terminals. Either would probably be a last, fatal blow to broad consumer service by anyone but the bells.

    Realpolitik thinking believes CLECs like Covad are irrelevant, without the capital or scale to compete with the bells. That's implicit in public policy moves by Intel, Alcatel, and Microsoft, but specifically denied by Powell and others in D.C. Powell has renamed the Common Carrier Bureau the Wireline Competition Bureau to proclaim his goals. He now needs to deliver - so far, competition is dying on his watch. Covad's price drop puts the issue to him squarely. Price shouldn't be the prime determinant of demand, but empirically it is. That means competitors need to face costs similar to the bells whose facilities remain essential.

     Covad's financial picture can't be swept under the rug, of course. The bondholders squeezed the company hard before allowing it out of bankruptcy. Ernst & Young did a great job getting the information into the 10K, which means reporters and analysts can find the negative details about the company. That's why I want to add DSL Prime's opinion that Covad has very good chances, on balance. Business customers, not consumers, will determine the prospects of the company for the next few years. I'm signing up with their reseller program.

     (Note to Hoffman: Universal Service  is charged to companies, not consumers. BellSouth and Verizon include it in their price, not as an added charge. Make sure when you announce the new prices, and post them on the web, you allow people to make fair comparisons. If you quote it as a surcharge - a non-standard practice - make sure to include it in large print everywhere you mention your price, and in the headline of your press release. True, 9.7% is a big chunk - schools and libraries should lower their costs by buying your DSL lines, and the program is overdue to check for inefficiencies. )

Corrections:
  • Focal's deployment of General Bandwidth gateways makes extensive use of T-1 circuits, and hence may not be the "VoDSL" breakthru I previously reported. Myrio's equipment is used for traffic shaping and network control, not as a "video server."
Competition:
  • Retail sales are becoming significant for Zoom on the cable modem side, and DSL is starting to go retail for them in the U.K, Larry Hancock writes.
People:
  • Walter Chen, who wrote DSL:Simulation Techniques and Standards has a new title, Home Networking Transmission Environment and System Architecture on the way from PH.
  • Matt Davis at Yankee, one of the best analysts in our space, is now heading a dedicated team, the Broadband Access Technologies planning service. He wrote to explain why he Yankee thinks cable is ahead in Verizon & SBC territory. "I think that the ILECs have lost sight of the big picture of the importance of broadband to compete for future customers and are using this short-sighted, ultimately disastrous strategy of intentionally limiting their DSL reach to press a perceived advantage with the regulators. In the meantime the MSOs have made hay. The difficulty in churning existing cable customers that the ILECs have elected not to compete for as a result of this strategy will send a wake-up call soon enough."  I hope it is "soon enough".
  • Dave Farber is spending next year at Carnegie-Mellon in Pittsburg, promising to help them "combine our nerds and wonks into a strong strategic thrust in IT policy". He also plans to write "on what will be the major public policy issues that the DC people including the FCC will have to face due to the still rapid progress in computer and communications technology. In order to do this right you need both a technical understanding and a policy appreciation. You need nerds and wonks and someone how can talk with both -- me." Dave's IP list is some of the world's most interesting journalism, and is extraordinarily influential.
Wall Street
  • Has anyone else noticed that Verizon & SBC are down over $100B, or more than Enron and Global Crossing combined? Meanwhile, Phil Anschutz has lost over $10B on Qwest.

DSL Prime - the trade paper of an Internet community

Headlines April 30, 2002

Q1 Japan 800K, US < 500K
Yahoo BB in the lead
US - Down from Q1 last year
Bell Canada: 109K in a much smaller territory
Korea: KT at 4.1M and profitable
Brazil at 300K, ready to double
Manuel Andrade sees Latin America passing 1M in the next year
"Trust me, we're not getting out of the ADSL business."
Roscitt on ADC/Pairgain Avidia future
13 cities roll for Focal VoDSL
Editorial: Tell the Chairman
Protect ISP pricing and quality (My FCC comments)
Work with reality, not propaganda
Clear the one real logjam, sharing remotes in the field

  • Briefs:  VoDSL dead?, Philippines, SBC, BellSouth Gig-E, Cogent/OnSite Access, Narad Networks, Simon Romero, Cliff Young, Robert MacMillan, Scott Bender, Jim Behanna, Joe Zell, funds for IP Communications, Sonicblue, Myrio, BigBand
"Deployment of affordable information access devices holds breathtaking promise" Mike Powell, FCC Chair, April 30, 2002

Ivan Seidenberg is endangering Powell's primary goals, again refusing to lower Verizon's $50 DSL price, even though Japan, Germany, Canada and now England are cheaper. Verizon is also far behind their planned 90% 2002 deployment.  Powell deserves to be judged objectively, but can he be elected President if his FCC term is a failure?. A key indicator is the price and deployment of consumer services. So far, his term has produced an 11% increase in basic phone rates in New York, the 25% DSL/cable rate increase, and a 10% increase in typical Internet fees.

    Powell needs new ideas, so he (and you) should head to Boston May 21-23. The Connectivity 2002 conference has offered all DSL Prime readers free admission as "Speaker's guests" through May 8. Bob Frankston has brought together Dave Farber (former CTO of the FCC), Jeff Chester (key advocate of open content on the net), Dan Bricklin (inventor of the computer spreadsheet), Dave Reed,  and two dozen more remarkable speakers. http://www.pulver.com/connectivity2002/standard.html (select "guest of panel lead" as payment option to get in free). DSL Prime readers also get a $100 discount on DSLCON, below.

    U.S. readers of DSL Prime should stop work for 15 minutes, and express your opinions to the FCC on broadband. Easy instructions below.

** DIRECTV Broadband and TI collaborate to deploy voice-enabled DIRECTV DSL(tm) gateways to residential consumers.   Deployment of the of the gateways, which will begin in late 2002, provide DIRECTV Broadband with the ability to launch Voice over DSL services to its customers.  TI technology will provide for home networking and two digital voice lines - enabling DIRECTV Broadband to offer subscribers the delivery of voice and DSL services through the DIRECTV DSL residential service nationwide.  For more information http://ad.doubleclick.net/clk;4093836;6989349;g?http://www.ti.com/sc/directvdsl www.ti.com/sc/directvdsl (ad)

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** Going to DSLcon San Jose? Take $100 off by using Preferred Code DS38D. (ad)

Q1 Japan 800K, US < 500K
Yahoo BB in the lead
The $22 price from Yahoo BB is proving irresistible, driving enormous demand in Japan (4x the U.S. rate). NTT is the only major telco in the world not leading in DSL lines, despite having lowered their rates to about $30 and matching Yahoo's speeds up to 7 megabits. eAccess, the third important player, is taking charge of the network built by Japan Telephone/Vodaphone, giving them national coverage.

US - Down from Q1 last year
SBC's 183K adds (to 1.5M) was less than what they reported in Q1 last year. Verizon dropped to 150K for the quarter (1.35M total), so they are bringing back their $29.95 for three months promotion. BellSouth did 108K (729K total).  Qwest did 36K or less, a dismal result. (484K total, including some out-of-region Covad resale. In district growth may have been as little as 20K. Time to bring back Saul Trujillo and Joe Zell.) CenturyTel at 6,900 & Broadwing 5K represent some of the smaller companies with results still to come.
     BellSouth is down from 157K Q4, and Verizon 225K. That's partly the effect of promotions, and probably shows a slight drag after the Xmas season. (BellSouth and Verizon believe DSL subs get a small spike yearend, as they do in September for back to school )

Bell Canada: 109K in a much smaller territory
They're beating cable yet again, as BellSouth does in most territories. DSL is beating cable consistently around the world, obscured by the failures of SBC and Verizon in U.S. media centers. The combobox (TIVO-like hard drive settop and home network) is looking good for a (small) rollout later this year. Monty took the fall for the $6B (U.S.) loss on Teleglobe, and the stock rose 20%. Maybe firing the boss is a good idea; Worldcom jumped 5% when they got rid of Ebbers.

Korea: KT at 4.1M and profitable
"KT has begun reaping profits on broadband, " Yang Jong-in, of Dongwon Securities told Reuters, as KT's quarter beat profit estimates. The majority of Koreans already have broadband - they'd virtually have to wire the homeless shelters to find more subscribers.

Elsewhere
Germany didn't maintain their blistering pace, raising prices slightly and dropping free modem promotions.  Belgium is doing well, France & Italy starting, and BT is turning away customers because the price drops inspired more demand than they were ready for. DSL Prime predicts China will be the world growth driver the next few years, but I don't see signs of acceleration just yet. (Those with knowledge of the China market, please write me in confidence. I'm anxious to hear more from folks in Asia, of whom several thousand subscribe but few send me email.)

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Brazil at 300K, ready to double
Manuel Andrade sees Latin America passing 1M in the next year
Brazil entered 2002 with 220K, likely to approach half a million by the end of the year. Andrade reports Telefonica expects 300K and Brasil Telecom another 100K. Pricing is about $40 + modem rental. Brazil has tripled wired phone lines from 15 million to almost 50 million in the last six years, and the companies are looking to DSL for future growth. Most of the network is modern equipment installed in the last few years, and loop lengths are generally short.
   
    Argentina entered 2002 at about 60K, split about evenly between Telefonica and Telecom. Devaluation brought the local price down, but few can currently take advantage. Mexico has been moving slowly, but Carlos Slim owned Prodigy and is on the board of SBC; he knows the potential.

    In Latin America, the cost of a backbone connection to the Internet is still high, and CAPEX is expensive in developing countries. Most of these barriers have finally come down and ADSL has finally started to flourish. Andrade, who recently spoke with the key telcos, expect year end totals of 700-800K, but sees potential for much more if Telmex is aggressive or Argentina gets back on track. Many DSL Prime readers know Andrade from his work at Westell when they were growing rapidly; he's now consulting, especially in the Latin market, and wrote this article for DSL Prime. http://www.dslprime.com/a/Andrade_on_Latin_America.htm

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"Trust me, we're not getting out of the ADSL business."
Roscitt on ADC/Pairgain Avidia future
Rumors are flying because of a Telephony report by Dan O'Shea. CEO Rick Roscitt reply is above, but he also spoke to me of redirecting investment, and refused to answer concrete questions such as sales volume, future plans, or continued investment. They did announce customers Frontier and LDCOM in France. A few hours after talking with Roscitt, however, I received an email from a newly laid off Avidia engineer, whose team was no longer necessary because the product was in "harvest mode". A confirmation from another ex-ADC engineer came in a few days later.

    Avidia is a well-designed DSLAM that hasn't attracted customers; DSL Prime has been wondering about Avidia's future for over a year.  Companies that refuse to promise futures for their products usually discover customers choose other suppliers. Cisco's sales efforts have been in a similar bind, with every potential customer hearing rumors they will drop the division. I've several times asked for top management to comment, because I know the prospective customers want that assurance. (My friends at Cisco think they'll pull through, but Chambers is making it very hard for them by refusing to speak up.)

    Pairgain was among the first to offer DSL, in the form of HDSL T-1 circuits. Henry Nicholas and Henry Samueli were prepared to move the company toward ADSL leadership, but the board refused to fund them. (They left and did pretty well, creating Broadcom). ADC bought Pairgain for nearly $2B not long ago, and fear of a write-off is one reason they kept the product line active. What will ADC's new  slogan be? They can't keep using "the broadband company".

Yet another DLC remote?
Roscitt was enthusiastic about the possibilities of their forthcoming NGDLC, but that's a tough market. Alcatel geared up for a $1B order from Project Pronto and similar hopes at Verizon, but both are cutting capex so deeply the prospects for volume are dismal. Petaluma is looking for a new strategy, and will have to aggressively compete to come even close to projected volumes. AFC has a loyal, diverse customer base, as well as $600M in the bank after smartly cashing out their Cisco/Cerent holding, and a strong product from AccessLan. Zhone has received kudos from customers after picking up the Nortel line, while Next Level, Occam and Catena are gaining traction. A slew of Asian suppliers, such as UT Starcom and Corecess, are looking west. Some out of date market research projects big growth, which is highly unlikely.

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13 cities roll for Focal VoDSL
Signing up businesses, fast
4-12 business lines is the sweet spot for CLECs, a niche where they can undercut the Bells substantially and have prospects of a profit. Focal, the first substantial customer announced for General Bandwidth, has been one of the most effective of the voice CLECs, but needs rapid, profitable growth to make up for a devastating loss of reciprocal compensation under the new rules. Adtran is providing the customer IAD. 

      Focal provided the key parts of a trial with Covad & Megapath - billing, customer support, and service. The technology worked, but all involved decided two many partners spoil the economics. Since then, without much publicity, Focal has installed DSLAMs in many key urban COs, serving their own customers and ISPs as well.

** Real system solutions to real network challenges.
The Total Access System from ADTRAN offers amazing new ways to capitalize on existing local loop infrastructure in the face of increasing competition and changing service demands. Whether you’re considering DSLAMs, next-generation DLCs, remote terminal retrofit, voice concentration, fiber distribution, integrated access, Voice over DSL, M13 multiplexing, or any number of high-speed digital local loop technologies, ADTRAN Total Access is the only solution you need.
For a free white paper, visit http://www.adtran.com/dslp042502. (ad)

Editorial: Tell the Chairman
If you don't take 15 minutes to send your comments on broadband to the FCC, you have no right to complain about D.C. mistakes. The Broadband proceeding is open for initial comments through Friday, May 3. It's incredibly easy to file on the net. Go to http://gullfoss2.fcc.gov/prod/ecfs/upload_v2.cgi enter proceeding number 02-33, and either type in your thoughts or attach a file. Do it!

Protect ISP pricing and quality (My FCC comments)
     "Through market forces or government mandate, reserve a proper climate for innovation." Powell, April 30

     Innovation built the web, and it will continue - unless barriers block new services. Larry Lessig is eloquent on the how technology ("code") can limit creativity, and how the net was built without chokepoints. ("e2e End to end). In telecom, that means the networks must not be designed to give overwhelming preference to selected services. Verizon should be free to go into the education business, but their DSL network should also accommodate the classes from the University of North Carolina. To avoid the necessity of government mandates, we need vibrant competitors delivering content. The wire guys - telcos and cable - must allow interconnect at a realistic price and  high quality. Make sure the 1.5 meg speeds advertised are delivered, so churches, universities, football teams and future dreams all can be delivered. The third Internet is fast enough to watch.

    That's the crucial reason independent ISPs should be protected from telco dominance. This is far more than a business competition issue, but rather goes right to primary concerns about diverse points of view and innovative new uses of the net. Cable TV notoriously blocks most channels, providing a "walled garden" of limited choice. This must not be extended to the Internet, but DSL providers like SBC (one third of the country) have exactly that in their plans. Contracts SBC demands of ISPs force video speed traffic to bypass the ISP and go directly to SBC and pay an extraordinary toll.  Mike Powell spoke eloquently to me two years ago, about how the availability of video on the net would allow choices far beyond broadcast TV, and how such innovation must not be choked off.

     That's why we need independents. DV cameras, Avids and Mac editing, and other inexpensive video tools will soon make it possible for hundreds of churches to webcast their Sunday services. Every college with a football or basketball team can broadcast to their campus and the rest of the world. Texas could receive TV channels from Punjab, Israel, Poland, Italy, and the U.S. Navy. Comcast won't carry them, forbidding video in their terms of service. SBC plans the same, seeing this as a "value-add" and finding technical means of effectively blocking programming. Cisco proudly explains how their routers can select preferred channels.

     DSL Prime urges the FCC to protect the end to end integrity and quality of the net.

      Unreliable service makes most of what Powell wants impractical. How many physicians will spend their time on a telemedicine consult when the video keeps dropping out due to congestion? Taplin of Intertainer just issued a call to make sure networks are fast enough for video (750K minimum today, higher tomorrow. DVDs are passing VHS this year, and "near-VHS" won't meet people's expectations. Live events like football games still require several megs.).

      Competitive rules are meaningless unless the prices are realistic. Telco unbundled DSL pricing of $33 or so is completely unjustified, and was a major mistake when accepted by the FCC. The complete package cost less retail in Canada, although the ISP pays for customer acquisition, support, billing, and the backbone connection. In Britain, regulator OFTEL has just agreed that BT's wholesale price of $21 is reasonable and profitable. The U.S. telcos, at the volumes they are now achieving, report their costs are the same or lower. The telcos have captured 80% + of the ISP business, by punitively pricing even to giants like AOL and Earthlink. Lowering the wholesale price to a worldwide standard $20 will do more than anything else to grow broadband.

     Quality and reliability is even more crucial, and generally ignored by policymakers. If we want innovative services, we need to make sure the networks are robust enough to carry them. Truth in advertising is the easiest way to enforce this. SBC (and others) should be obligated to deliver on their network the 1.5M they have advertised and promised on 2000. They cannot guarantee Internet speeds, of course, but they can establish network peering points to accept traffic and maintain appropriate quality within their own network, as they promised to do in 2000. SBC's own ISP doesn't maintain that service for incoming traffic - the best argument I know for multiple independent ISPs.  Otherwise, the telcos should run corrective ads and pay fines large enough to notice.

Equipment and fiber costs have come down so much reliable service costs little more, typically less than the marketing budget. Two large ISPs calculated that unlimited rate DSL service (7 meg if you're close enough, 512K upstream) would add less than $2 to monthly consumer cost. Japan is making that standard, and DSL Prime believes speed limited DSL service is a great argument to shift to cable modems.

Work with reality, not propaganda

    Mike - have you asked Ivan and Ed whether they'll deliver? That's 2/3rds of the country, and their actions imply strongly their D.C. rhetoric is disingenuous at best.
    
     Will SBC, Verizon, and BellSouth deliver significantly more broadband if they are deregulated? Ask them, and if they can't say yes, then how the heck can you justify the entire proposal? BellSouth is already going to 78% coverage in 2002, and before Powell became chair SBC announced 80%, and Verizon announced 90% for 2002. In reality, SBC & Verizon virtually stopped deploying in Powell's term, and are unlikely to even meet their previous goals.

     In fact, I have asked all the companies involved, several times at many levels. Whitacre, Seidenberg, their pr folks, and even SBC's CTO say deregulation will bring wider DSL coverage. But not in their territory.

     Other "big lies" also have tainted the debate. An honorable economist, Fred Kahn, today supported the NPRM because the telcos would have to spend "many billions every year" to build DSL networks. This is of course is nonsense: they could double their current growth rate for a tenth of the figures he was citing. He also spoke of enormous risk to that capital - in fact, they break even with a 5-8% take rate in the next stage buildout, a number lower than they've already achieved in most areas. Risk is minimal - that's why BellSouth, Bell Canada, NTT, DT, and others are already far ahead of SBC and Verizon deployment.

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Clear the one real logjam, sharing remotes in the field
    
     Tom Tauke of Verizon made a very reasonable proposal, which DSL Prime supports. "New wires, new rules" - that sharing requirements not be extended to new DLCs. Instead, the signals can be shared in the central office, which is less expensive for all concerned. The price has to be fair, of course. Key factor is quality, for all the reasons above. A non-blocking DLC, which supports video at 7-26 meg, costs almost the same, installed, as a lesser unit. If the competitors can't run directly over the wires from the CO, the network can and should be configured to give them the same reliability and quality of service. This is important for voice over DSL and IP, video, distance learning, telemedicine, etc.


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Email:
  • "Do the problems at Jetstream mean VoDSL is dead?" wrote several readers. No, the market is real, but much smaller than everyone (including DSL Prime) expected. SBC, Verizon, and Bell Canada all decided to wait a few years for pure VOIP. CLEC like Broadview and Network Telephone are finding complete service for businesses - local voice, LD, data - works. An IAD vendor in Europe is seeing some volume, and every CLEC that survives is a likely customer. Coppercom just landed a small deal. None of this is enough to justify the $B Cisco was waving in front of Jetstream and Coppercom, but smaller vendors, comfortable in a niche, have prospects. A deal for Jetstream's assets is close, I believe, but not firm, with Frontier, Network Telephone, and AT&T accounts in suspense.
International:
  • Alcatel Philippines says customers have installed 12,000 DSL lines, with 30-40K coming soon.
Flackery
  • SBC, looking for some good news in a bad quarter, put DSL as the lead in their quarterly earnings, and pointed out the 183K quarter was their best in several quarters. One story had "strong gains" and the Forbes reporter was snookered. In fact, SBC was geared up for 350K a quarter by the end of 2000, and 183K remains extremely disappointing, down from the claim in the year earlier quarter. It's less than Verizon did last quarter, and not much more than BellSouth's previous quarter - in more than twice the territory. It's also little higher than the new customer totals of SBC in several quarters last year.
  • The $500B economic payoff from broadband appeared in a Verizon press release, based on a Bob Crandall study. Common sense makes clear it's nonsense, as would even a quick reading of the actual paper. Totally unsupported conclusions, far beneath Brookings traditional standards.
Competition:
  • BellSouth has launched Gig-E in Atlanta, with IBM the first customer.
  • Cogent, primarily a Gig-E provider, bought building rights contracts from OnSite Access in their bankruptcy filing.
  • Wanna bet $2,000 that by 2007 that a telco will go broke?  Narad's CEO, Andy Chapman, is ready to fade your bet. Bob Metcalfe, Danny Briere, and others are enthusiastic about Narad Networks, which uses the cable frequencies above 860 megahertz to deliver fast Ethernet speeds and higher. Most cable companies have near term plans to reach the business market, and Narad delivers speeds far beyond standard cable modems aimed at business customers.  Paul Johnson of Robbie Stevens is on record with a similar position. I disagree - U.S. telcos have major distortions in their financial reporting, but they remain inherently highly profitable.
People:
  • Simon Romero has been temporarily pulled from the NY Times telecom beat to cover the coup in Venezuela. He reports the crucial role of billionaire beer baron Gustavo Cisneros, who hosted regular meetings of the future plotters. Cisneros is a partner in AOL LA. He shares a $500M investment fund with Hicks Muse, who invested in Rhythms, ICG, and Teligent. He also owned a share of Ron Lauder's now bankrupt telecom outfit RSL COM. Cisneros, the Brazilian Safras, and Carlos Slim of Telmex and SBC are the key Latin telecom outfits, alternately co-operating and competing with the U.S. and European multinationals.
  • Cliff Young of Internet Connect is so convinced of the strong corporate market for VPN, he's re-assembled the team (60 people, he says) to form Clearpath Networks. He thinks a strong SLA is the key to business sales.
  • Robert MacMillan is now Tech Policy Editor at Washingtonpost.com. His fellow tech policy reporters from WP subsidiary Newsbytes.com, David McGuire and Brian Krebs, are joining him there. Between the three of them, they've consistently scooped the paper itself. Robert promises to continue to report on the latest technology policy developments as outlined by the movers and shakers in the field, as well as other influential blowhards.
  • Scott Bender, a key part of Mark Floyd's team, is leaving Efficient Networks/Siemens after several years as their public face.
  • Jim Behanna worked on the AT&T account at Jetstream, and rapidly landed at competitor General Bandwidth after Jetstream closed the doors.
  • Joe Zell led U.S. West's DSL effort when they were the world leaders, and now has become a venture capitalist at Grotech in Maryland. He will focus on Mid-Atlantic and Eastern opportunities, especially B & C rounds for mid-cap companies.
Wall Street
  • Sonicblue, makers of Replay TV and Diamond Rio MP3 players, raised $62M and video producer Myrio raised $6M. BigBand got $27M, as their VOD servers are in place for 500,000 cable homes.
  • IP Communications, a DLEC from Texas, got $20M more from GE, CSFB-DLJ, and Brookwood.
  • Martin Dropkin at CSFB picked up the coverage on Allegiance with a hold, a rare and gutsy move.  
2 + 2 = 4
  • Most of the commentators being trotted out for policymakers have financial ties to the companies involved. In 15 minutes, I could trace five of the eight "top economists" announcing today to money from Verizon or SBC. That doesn't mean, for example, that a Yale Professor doesn't have a right to an opinion. But at least they should acknowledge the conflict of interest when they take a stand. I have similar conflicts, selling advertising to companies I cover; at least you see who pays us, and can judge our fairness.
  • Cable companies continue to report losses, while Wall Street still values them on inappropriate measures like EBITDA. One day, the street will catch on. This worries me, because competition is weak enough without the cable side being crippled by collapsing stock prices.
  • Almost all companies have major distortions in their earnings statements; several billions in the biggest telcos alone. This means the real price to earnings ratio of most companies is much higher, and investments riskier.
  • A long term 10% return on investment in real terms is impossible for a large entity, like the GM or SBC pension funds. The economy is only growing at 2-5% at best, so a 10% or even 8% return would have to come out of consumer income. Capital now receives 35-40% of the national product; two decades of 10% return would raise that to an unreal 60-80%, and wages only a third of output. That would make the Argentine economy look like paradise. Reality over a long term is 1-4% over inflation. Floyd Norris in the Times pointed out how much of Verizon's earnings (and management bonuses) come from this illusion; Shawn Young in the WSJ traced 20% of SBC's earnings to similar overstatement.
  • 2 + 2 = 4 will be an occasional section, covering items that aren't news but perhaps are overlooked.
Stories stewing: 10 meg is a sweet spot (Next Level is delivering two video channels, Hatteras sees a business market, Actelis gets a Cioffi endorsement, EFM is meeting in Scotland), Paradyne's ReachDSL 2.2, Near-universal service needs no subsidies, Whitacre/AMDOCS, prices explained (SBC ordering 2 million units gets a better price than most), Altrio's $19.95 is competition, Better regulation through ignorance (NARUC opposes the FCC information cutback),  Australia, China R&D (AT&T just closed another lab) death of internet radio, End of Wall Street Analysis?

Headlines April 16, 2002

  • Jetstream is gone
  • VON - Verizon buying IP Centrex
  • SBC - $100K for privileges  
  • Alcatel Micro dumped to Thomson
  • Sprint? Covad?
  • SBC big writeoffs, Qwest new layoffs
Briefs: Earthlink, D-Link,  Dynamic Spectrum Management, Lynn Stanton, Claudia Bacco, Myrio
There was great joy at radio station WBAI, where Verizon's full speed DSL line is a new pleasure for all the staff. Joy also in Seattle, where Voice on the Net is finding customers. Now, time to bring advanced services to everyone.

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Jetstream fails
Successful products and skilled staff looking for new home
The end came so fast Friday even a VP didn't know it the day before. By Monday, one of the best and brightest companies was closed, as a deal failed at the last minute. Jetstream has VoDSL gateways in production at AT&T, Network Telephone, Citizens/Frontier, and Versatel running the European standards, and had revenue in 2001 of $25M. That left them confident financing was coming, and the layoff two weeks ago was sufficient. It didn't and David Frankel had no choice but to close on Friday.

     In the last few days, serious talks have resumed with prospective buyers of the company and technology. The Jetstream voice gateway has done well with the announced customers as well as trials in BellSouth, Bell Canada, and Korea Telecom. It has a natural niche with all the existing class 5 switches, and solves numerous operational problems for telcos facing local copper exhaust. Given the company has announced it's closing, the assets should be a remarkable bargain. Meanwhile, Jetstream employees are helping each other by circulating  job openings.

    Voice over DSL looked to be so huge Jetstream did a funding round at a value of almost $1B, and could have arranged a sale at that price or higher.  "We did fabulously in the old days only a year and half ago, but now the pendulum has swung the other way. Investors are superskeptical." Frankel told me.

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Alcatel Micro goes to STMicro
$344M for DSL chip market leader
Alcatel's chip division has been crucial to their dominance of the DSL market, and the price seems remarkably low for the largest manufacturer of DSL chips for both DSLAMs and modems. Alcatel and ST were already closely entwined, crosslicensing and manufacturing for each other. Thomson has taken over Alcatel's modem business, but presumably will remain a customer for the chips.

     Alcatel Micro had been spun into a subsidiary, with an IPO planned before the market collapsed. The sale price must reflect distress; it's only a quarter of the market cap of Globespan, number two or three in DSL chips. STMicro immediately recouped much of the $344M by in turn selling Alcatel's mixed-signal ASIC business and fabs to AMIS. The price implies that Alcatel Micro, like most chip vendors, has been struggling with low prices.

      Alcatel is getting some cash, but sacrificing a strategic edge. Alcatel Micro, for example, was used to destroy potential competition from G.lite by pricing fullrate chips only $2 higher. They told Loring Wirbel of EE Times and this writer they would maintain that narrow spread no matter how low they had to go, and therefore no manufacturer jumped to G.lite. But late delivery of the DMT VDSL chip means that Alcatel will be six months behind Lucent offering VDSL in their DSLAM.

In the boom times, many of their best jumped to startups, especially after Broadcom bought out E-14 for hundreds of millions. Broadcom still hasn't brought the E-14 chips to market, but may at SUPERCOMM in June.
     
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Voice on the Net: telcos at last
Seattle upbeat as Verizon ready to buy
Verizon is ready to conclude a voice over broadband RFP. The actual contract will be small, probably aimed at remote IP Centrex for Verizon's CLEC, but telco fears of IP are rapidly being overcome. At Jeff Pulver's VON conference in Seattle, the mood was upbeat and prospective customers abounded. I spoke with NTT, Telus, AT&T, BT and Verizon, mostly lab and tech folks still exploring. SBC also has an RFP out.

     Kevin Grundy of DirecTV DSL explained the technology in their Voice over DSL offering due late this year. They are running SIP on the modem, which means all you need is to plug in an ordinary phone like the $17.95 Trimline I just bought. Grundy was a founder of the company, and since their initial concept in 1996 they've included extra memory and processing power in their gateway, planning to add voice and other services. Ned Hayes excited the VON