Bring in the DSL ‘Clowns’

Dec 12, 2001 12:00 PM

Traditionally, technologists have often been derisive in mentioning our marketing brothers and sisters, often referring to them as 'clowns' or worse. While this animosity may or may not be deserved, today's situation in high-speed home access markets requires a reevaluation of the place of these 'clowns.' The high-speed access market has taken on an overriding importance in the telecommunications world. Thus, it should be addressed with more than narrow provincialism.

Before 2000, network traffic comprised mostly voice or analog data. In late 2000, the continued growth of Internet accesses (almost all low-speed dial-up at the time) caused data to become the most predominant form of traffic. Since then, data has continued its strong growth rate and now is the dominant form of network traffic. It continues to grow rapidly, in relation to voice (Figure 1).

The downturn has affected all aspects of the telecommunications market. Different analysts have ascribed various reasons for the telecommunications downturn:

• The general softening of the economy that started in late 2000 and continued into the first half of 2001, maybe further.

• The failure of many dot.coms that had fundamentally flawed business plans or that were pushed over the edge by the slowing economy

• Major networking suppliers (Cisco, Lucent, Nortel, etc.) finding themselves in a bind, having just increased capacity and production to meet the high demand that preceded the slowdown. In addition, many of these vendors made shaky equipment loans that failed to perform in this difficult time

• Major vendors finding themselves in an over-inventory position after attempting to sell legacy equipment to a market that was demanding the latest, most superior, technologies (e.g., the difference between first and second generation metro DWDM systems)

• The failure, or virtual failure, of almost all the data CLECs at nearly the same time.

The attacks of September 11, 2001, have worsened the situation and have made the market for high-speed accesses even more important to the overall telecommunications market.

The marketplace for high-speed access (primarily cable modems and DSL lines) is somewhat unique. Customer demand is not in question -- everybody who has Internet access, and who knows what high-speed access is, wants it. Recent surveys suggest those that have high-speed access would give up almost anything (more than 60% claimed they would give up their newspapers, cable TV or even morning coffee) to keep their DSL lines. We all can quote anecdotal evidence of friends, family and acquaintances who don't have high-speed access but would do almost anything to bring it into their neighborhoods.

Another survey recently released indicates that as many as 70% in groupings by age and as many as 63% in groupings by geography either have or want high-speed access. How many products would like to have demand measurements like that?

Sales of high-speed access lines have remained strong right through the 'economic slowdown' of late 2000 and 2001. While there was a decrease (in growth) in the second quarter of 2001, the data from the third quarter suggests strongly that the market is back on its high growth path (Table 1).

 

Table I. High-Speed Access Additions       

Cable Modem Carriers	1	2	3
ATT	203,000	131,000	100,000
Charter	90,900	76,100	102,000
Comcast	277,400	101,600	117,100
Rodgers	34,800	31,900	43,900
Cox	97,744	52,294	111,461
Time Warner	237,000	226,000	252,000
Total Cable	940,844	618,894	726,461
xDSL Carriers	1	2	3
Bell South	88,000	78,000	82,000
Bell Canada	130,000	63,000	96,000
Qwest	51,000	54,000	45,000
SBC	187,000	83,000	150,000
Verizon	180,000	120,000	160,000
Total xDSL	636,000	398,000	533,000

 

This author's estimates (and these are conservative compared with some) suggest that this market will grow from around 8,500,000 at the end of 2000 to at least 43,500,000 by 2005 (a compound growth rate of 53% per year). This is a market just begging to be served (Figure 2).

However, when we look at the access suppliers (the RBOCs and the major cable companies), we don't see the frenzy one would expect trying to meet and feed this demand. Instead we see the following nonchalance towards this market:

• A major RBOC that used to be a leader in DSL development has closed its only customer, high-speed access development lab. What kind of business sense does this make in view of the potential market?

• Another major RBOC that had been the leader in deploying DSL service is cutting back its highly publicized program to facilitate DSL by moving fiber out close to neighborhoods. They are now limiting their serving areas to metropolitan and high-density suburban areas. Is this an overreaction to the economic slowdown, or are their lawyers using this as a way to make a point to the regulators?

• A major RBOC appears to be canceling its DSL plans in a large state because it can't get its way with the regulators. Is this just the classic case of the little boy taking his bat and going home because he doesn't get to bat first? Does the company still not understand that this is a competitive market, no longer a monopolistic one, and that it needs marketing approaches, not legal ones?

• Another RBOC, historically known for its leading-edge technology in the customer loop, is still trapped in the mid-90's mentality of experimenting with multiple approaches to bringing high-speed access to its customers. Experimentation is a great approach if we are searching for answers, but we now know the answers. Using multiple approaches fragments the effort and delays serious widespread deployment.

• The cable companies are wringing their hands over losing TV viewers to satellites, but they seem oblivious to marketing the one advantage that the satellite services can't match -- high-speed data access. Where is the leadership?

While the above things are happening, we are not seeing the access suppliers aggressively develop this market:

• Why aren't the carriers offering home network packages? Packages could include a DSL line (or a cable modem), a residential gateway or a router, home wiring as necessary, and options such as an integrated wireless home network, home utility control and monitoring, home entertainment interfaces, firewall protection, resource sharing and multiple computer connections. The revenue advantages to this package approach are obvious, but also consider the market value of locking the customer in to the package supplier.

• Why don't we see more major efforts at getting fiber out to the remote terminals that are bottlenecks to DSL? (There is, of course, Project Pronto of SBC -- now vastly curtailed, but where are the others?)

• Why aren't all the cable companies aggressively moving to upgrade their networks for cable modems and using this advantage to solidify their relationship with their customers?

It appears that the RBOCs and cable companies are relying on lawyers and regulators rather than developing substantial marketing approaches. The continuing interest in inferior radio-based technologies (e.g., satellite as evidenced by the pending merger of EchoStar and DirectTV) for this purpose, suggests that many people understand the vacuum being created by this lack of marketing efforts.

The competitors (the DLECs) are dying off. Congress is ready to make it even harder for them to ever be viable. The field is wide open. We now need to see leadership from the RBOCs and the major cable companies in providing service through aggressive and imaginative marketing approaches to this large and important market segment. Bring in the Clowns.

Clifford R. Holliday of B and C Consulting Services can be reached at c.holliday@ieee.org

---

FYI...

AT&T considers tiered pricing structure for broadband Internet
Dec 10, 2001, TelephonyOnline.com, by Glenn Bischoff
AT&T Broadband is considering a tiered pricing structure for its high-speed Internet service that would force “power users”--those who account for 1%...

Excite@Home topples
Dec 10, 2001, TelephonyOnline.com, by Kevin Fitchard
Excite@Home and AT&T Broadband last week engaged in a dangerous game of “chicken” last week, putting @Home’s future and 850,000 AT&T cable modem connections...

Charter signs service deal with @Home
Dec 7, 2001, TelephonyOnline.com
Charter Communications officials said today 14,000 of its cable modem customers in the Pacific Northwest will remain on the Excite@Home network while...

I Want My SLoA!
Dec 7, 2001, The Analyst's Corner, by Peter Bernstein
So here is the deal. Since I do not wish to move, I want Sprint to buy the Bergen County, N.J., operating assets of Verizon. I want this millennium's...

Verizon CEO: Give us tax incentives to invest
Dec 4, 2001, TelephonyOnline.com, by Glenn Bischoff
Verizon Communications CEO Ivan Seidenberg yesterday said Congress should move quickly to pass an economic stimulus package that would provide a 30% “bonus...

WOW cleans up Ameritech acquisition
Dec 3, 2001, TelephonyOnline.com
WideOpenWest (WOW) has completed purchasing the Ameritech New Media cable television assets owned by SBC Communications that serve 310,000 subscribers....

VENDORS STAND TO BENEFIT IN WAKE OF @HOME SHUTDOWN
Dec 3, 2001, Telephony, by Vince Vittore
Push has come to shove for cable operators wrestling over the fate of the Excite@Home network, and vendors...