DSL SERVICE PROVES STICKIEST FOR CARRIERS BUNDLING UP

DSL is quickly assuming a crucial role in the bundling wars. The two RBOCs to report third-quarter earnings last week, SBC Communications and BellSouth, both posted significant gains in DSL subscribers, while AT&T announced that it has extended its DSL line-splitting trials to five states — and other IXCs are right behind it. And just as the incumbent carriers realize that DSL-inclusive bundles keep customers on their networks, competitive carriers are figuring out how DSL can help them lure those customers away.

SBC reported 365,000 net new DSL customers in the third quarter, bringing its total to 3.1 million and making it the second largest broadband provider in the country (behind Comcast). SBC passed Time Warner Cable, which reported 3 million subscribers last week. SBC Chief Financial Officer Randall Stephenson said SBC's rapid DSL rollout would continue as the carrier makes the service available to 80% of its customers early next year.

“No one has sustained the upper trajectory growth that SBC has,” Stephenson said in SBC's earnings call last week. “DSL is a highly retentive product.”

Retentiveness is exactly what the RBOCs are looking for, hoping to stanch the flow of lost access lines to competitive carriers and wireless replacement. But just as the RBOCs are using DSL bundles to lock customers in, IXCs' local arms are starting realizing the value of their own DSL bundles.

While AT&T has not reported any DSL numbers in the five states it currently offers DSL service, Chairman and CEO David Dorman has committed the carrier to adding DSL to the bundle everywhere it offers local service. With line sharing almost dead, thanks to the FCC's triennial review, IXCs will have trouble convincing customers to switch local voice service providers if there's no possibility of receiving high-speed data services. Though all of the major IXCs have announced plans to deploy DSL (Sprint has announced no date), there hasn't been much activity so far.

Covad Communications, which supplies DSL to both AT&T and MCI, believes DSL is an important part of retaining customers, said Charles Hoffman, CEO of Covad. “We think DSL will be the stickiest service in the bundle to date,” Hoffman said.

That is not a universal sentiment While local and long-distance might make a natural bundle, customers are willing to buy data separately, said Dan Moffat, CEO of New Edge Networks, which wholesales synchronous DSL to other carriers for bundling.

“I've seen evidence to suggest that DSL helps address churn, but there isn't much to suggest that customers want data services on the same bill as their voice services,” Moffat said.