BellSouth looks toward next-gen DSL

For BellSouth, the ILEC with the largest base of deployed fiber, the best path to better residential broadband is through faster DSL. The company's plan to focus its capital strategy on improving DSL's availability and bandwidth stands in contrast to the plans of its ILEC brethren, SBC Communications and Verizon Communications, which will spend the next few years and billions of dollars deploying fiber deep into their networks.

Duane Ackerman, chairman and CEO of BellSouth, and Mark Feidler, the company's new chief operating officer, last week outlined BellSouth's broadband evolution at the company's analyst day in New York City. The strategy focuses on beefing up existing DSL facilities with ADSL2+ and DSL bonding techniques to scale DSL bandwidth to 24 Mb/s, enough to support HDTV-quality video. Ackerman said BellSouth also will deploy fiber to the curb but only in greenfield opportunities.

“We'll continue to do retrofit broadband upgrades with DSL because we think that's the technology of choice,” Ackerman said. “It's clear that we need to continue to expand our DSL footprint and continue to work on the technology to increase speeds for all the new applications we'll be running in the future.”

BellSouth will do that initially by implementing ADSL2+, which will boost DSL bandwidth to 12 Mb/s. After testing, the carrier hopes to soon supply up to 6 Mb/s to one-third of the homes in its 30 largest markets.

Early next year, the carrier also will test DSL bonding, which allows two or more DSL connections to be aggregated in a single, virtual pipe, making 24 Mb/s via DSL possible.

This is similar to what SBC is doing in deploying fiber to nodes, with DSL the rest of the way, but SBC is extending DSL 3000 feet to 5000 feet, while BellSouth, in some cases, will use shorter extensions of 1000 feet or less, according to John Celentano, president of Skyline Marketing. Verizon, meanwhile, is pursuing an aggressive fiber-to-the-premises strategy.

Feidler told the analyst contingent that about 46% of BellSouth's 16.3 million passed are passed with loop lengths of less than 5000 feet He added that by 2009, the company expects to have passed 80% of its residential customer base with ADSL2+ and copper pairs.

“A lot depends on our testing, but we feel confident we can get all this work done within the next five years,” Feidler said

He added that the company's broadband upgrade schedule also depends on the return BellSouth realizes from its incremental technology investments.

Celentano called BellSouth's overall broadband approach “pragmatic.” Other analysts agreed.

“It's a more conservative approach than we've seen from the other telcos, especially more conservative than Verizon,” said Will Power, analyst with Robert W. Baird and Co.

“The value with DSL is that it's the most economical way to scale incrementally,” added Lawrence Vanston, president of Technology Futures.

While it's ironic that the most fiber-rich carrier is intensely focusing on copper improvements, the ultimate irony, according to Ackerman, is that BellSouth's past aggressiveness in deploying fiber allows it to be step-wise now. The company already passed 1 million homes with fiber and is passing another 100,000 to 200,000 homes annually. The company recently surpassed the threshold of 2 million DSL customers.

BellSouth didn't offer a spending projection for its imminent DSL upgrades, though Feidler said the company was “re-allocating assets” to pursue the planned upgrades.

Frank Louthan, analyst at Raymond James & Associates, wrote in a research note that he expects BellSouth's overall capex to remain flat in 2005, with fiber and DSL spending accounting for 36% of the budget, compared with 30% in 2004.

Feidler said that to attain the goal of 80% of homes passed, ADSL2+ technology can be deployed for about $225 per household. Celentano estimated that Verizon will spend “four or five times that amount.” (See related story this page.)

As for applications, Feidler said BellSouth also is moving beyond data. The firm will test voice over IP next year and will trial Microsoft's IPTV platform. While Verizon and SBC both are being more aggressive with video, BellSouth is playing “wait-and-see,” according to Louthan.

“The company's tone toward video deployment was cautiously optimistic,” he wrote, adding that the cautious approach could pay off if video CPE costs shrink over time.

However, Ackerman said BellSouth's attitude derives from the fact that its resale deal with DirecTV already is giving it enough video ammunition to market triple-play packages.

“We already have a triple-play bundle with voice, DSL and DirecTV,” Ackerman said. “We are not making a lot of money on it, but we are not spending a lot either.”