- The Washington Times - Monday, November 12, 2001

Call it the need for speed. Call it the thirst for music, video and interactivity. Call it impatience.

Whatever it is, it's the driving force behind demand for high-speed Internet connections.

Even in a slow economy, millions of Internet users are willing to shell out upward of $40 per month to get the quick download speeds and always-on connections provided by high-speed commonly referred to as broadband service. But its deployment has come at a slow pace in many areas, and once-feverish demand for high-speed services has cooled off as the economy continues to struggle.

Broadband comes in several forms, the most common of which are cable and digital subscriber line (DSL). DSL uses standard phone lines to move data. Cable broadband is provided by cable television companies, which use their cable lines. Both have had their share of growing pains.

High-speed connections can download information up to 50 times faster than a standard 56-kilobyte modem; downloads of entire movies can take less than 30 minutes.

Internet users want the speed, but currently only 4.5 million, or fewer than 10 percent of all U.S. Internet users, use DSL. More than twice as many use cable, but they still represent a minority of all Internet users.

"The availability of service has been really spotty," said Adam Guglielmo, a DSL analyst with technology consultancy TeleChoice Inc. "That goes pretty equally [for cable and DSL]."

But there are signs that availability has improved or, at the very least, demand has gone down. TeleChoice reports that DSL subscriptions grew by 20 percent in the first quarter of 2001 and 14 percent in the second quarter. This increase may seem significant, but when compared to an annual growth rate of 388 percent in 2000, analysts point to a slowing of demand. In the past month, many DSL providers are have lowered prices for services and offered incentives to sign up.

Cahner's In-Stat Group, an analyst firm in Scottsdale, Ariz., reported earlier this year that demand for broadband far outweighed supply. But on Oct. 24, the firm released a report suggesting deployment had matched demand, particularly with respect to DSL.

"Even though the residential DSL market slowed significantly after the first quarter of 2000, residential DSL broadband access services are becoming increasingly available in the home as providers are able to extend their services to the edge of the network," Cahner's analyst Ernie Bergstrom says in the report.

Some analysts say the recent decrease in DSL subscriptions might be due to marketing efforts of satellite Internet providers, such as DirecTV and the Dish Network.

Despite its universal availability, satellite for a time attracted consumers only in rural areas where DSL and cable services may not appear for years. Satellite service, while seen as reliable, is not as quick, and costs more.

There are indications that as satellite television increases market share over cable, satellite internet may pick up subscribers. Hughes Electronics, which owns DirecTV and EchoStar Communications, which owns Dish Network, have been in the headlines recently. The two companies earlier this month announced plans to merge, a move that is expected to attract close scrutiny from the Federal Communications Commission and the ire of consumer advocates.

EchoStar's Dish Network claims about 6.9 million subscribers, while Hughes' DirecTV service reaches more than 10 million customers. By contrast, AT&T; Broadband, the largest traditional cable operator, serves about 16 million households

Fiber-optic lines provide service much faster than cable, DSL or satellite, but it will be 15 years before such service will be rolled out significantly.

Problems plague DSL

Much of the delay in broadband access has been due to problems with DSL service.

In DSL's fledgling stages in the mid-to-late 1990s, there were countless complaints from customers who waited weeks or even months to get hooked up.

Technological hurdles abound for DSL, because subscriber lines are often incompatible with older copper phone lines. Making the proper conversion can be costly and time-consuming.

Consumers have complained loudly, and often.

Scott Levy, head of the Children's Rights Council, tried last year to get DSL from Covad Communications, which used phone giant Verizon Communications' network.

After $3,000 spent and countless phone calls to customer service representatives, the council gave up and settled on using dial-up connections. Mr. Levy received a refund after six months but has not gone back to DSL.

Web sites bashing DSL providers abound on the Internet, as annoyed customers vent their frustrations about slow installation and spotty customer service.

Large companies like SBC formerly Southwestern Bell Communications and Verizon are popular targets, just because of their size.

Writes one frustrated Verizon customer on a Web site called Verizonpathetic.com: "After four months of waiting, and three different 'service ready dates' for DSL, Verizon called me today and said everything was set and I was up and running. Turned on the modem and … um, nope."

From an online message board regarding Sprint DSL service: "If anyone thinks about getting DSL, I would advise against it completely. I have not been able to access my e-mail for three months."

From a Web site called WeHatePacificBell.com: "DSL installation takes forever and is a nightmare."

Analysts said there are still some hiccups in service DSL providers still can take weeks to deploy, while cable broadband can be hooked up within a day but that providers have made noticeable improvements.

SBC announced in its most recent earnings report that the average customer waits 10 days for DSL hook-up and that 90 percent of orders are completed on or before their original due dates. A wait of over 30 days used to be the norm.

Verizon touts similar figures and says the waiting list for service has shrunk to fewer than 800 customers nationwide. Meanwhile, the company claims that 90 percent of its customers use self-installation kits, which can save time.

Only Verizon has reported a big increase in subscribers this year. It boasted 120,000 to 130,000 new subscribers in the third quarter. Though analysts say the recession might cause the company to fall short of its goal of 1.2 million to 1.3 million subscribers by year's end.

SBC, once the leader in the DSL market, fell behind Verizon during the first quarter after reporting a 25 percent decline in subscribers.

But many big local phone companies like SBC and Verizon are able to offer DSL only to about half of their customers, leaving thousands without access, according to DSL Prime, an industry magazine.

DSL service is still concentrated in more-populated areas, where more customers are within the required distance to central offices. Any subscribership increase will come from these areas, not geographic expansion, Mr. Guglielmo says.

Geographic expansion requires construction of more central offices, which can be costly and time-consuming.

"They need to figure out ways of stretching their reach," he said.

Cable leads the way

While DSL struggles, cable broadband is outpacing its competitor.

The number of cable modem users hit 6.5 million earlier this year, and the industry reported an 18 percent growth rate in the first quarter.

Nearly all cable providers report increases in customers. Overall, cable has a 70 percent-to-30 percent advantage over DSL in the U.S. residential market, according to TeleChoice. Cahner's In-Stat says cable modems will be the broadband access technology with the most subscribers until at least 2004.

But not all is well on the cable front. Cox Communications and Comcast announced in August that they would terminate their agreements with [email protected], a leading broadband provider, effective in July 2002. On Sept. 28, [email protected] announced that all of its broadband access business would be acquired by AT&T;, and the company said it would file for Chapter 11 bankruptcy. [email protected] lost $7.44 billion in 2000 and $346.3 million in the most recent quarter.

Analysts say DSL is still playing catch-up because it stumbled out of the starting gate.

"[Cable] has a head start of at least a year in bringing it to residential areas," said Ernie Bergstrom, a senior analyst with Cahner's.

While some analysts argue that cable outpaces DSL because it can offer more in the way of voice, video and game features, DSL providers claim that cable companies dominate because they don't have to deal with regulatory hurdles. Cable companies can deploy Internet access over their networks without meeting any local regulations.

"There is no regulation on the cable side," Verizon broadband spokesman Larry Plumb said. "The guy that's got the largest market share is unregulated."

Bells vs. the little guys

Baby Bells like Verizon and SBC, which provide more than 80 percent of DSL service, often face off against smaller, local service providers, known as competitive local exchange carriers (CLECs).

The relationship between the Bells and the CLECs is odd, because they are both competitors and business partners.

Most CLECs, which compete against the Bells for local phone and Internet service, must rely on the Bells' network for service. This has led to some verbal attacks on both sides. CLECs and consumer groups say the Bells haven't played fair in opening up their networks, causing business to suffer.

Digital local exchange providers (CLECs that provide only Internet services) have been especially hard-hit by the economy and blame the Bells for their demise.

Many DLECs, including Harvardnet, Winfire and Northpoint Communications, have folded, leaving their customers stranded. And other providers have yet to fully attract abandoned clients.

Covad Communications Group, a DLEC in Santa Clara, Calif., said in August it would file for Chapter 11 bankruptcy protection to escape from nearly $1.4 billion in debt. Covad was the first non-Bell company to provide DSL.

"Obviously, the Bells have a business incentive to slow-roll their competitors," said Chris Murray, a telecom analyst with the Consumers Union. "It's really difficult to be a competitive provider in that atmosphere."

"We just can't get the connections in a timely fashion," said H. Russell Frisby, president of the Competitive Telecommunications Association, which represents CLECs.

More consumers are abandoning the DLECs for the Bells out of fear that their provider will go bankrupt, although DLEC service is better, consumer advocates say.

"I hate to say this, and I probably shouldn't, but CLECs provide much better service," Mr. Murray said. "But it's very tempting to go with the Bell companies given the rate at which the [DLECs] are going out of business."

The Bells and many industry analysts say the CLECs should blame themselves. DLECs in particular weren't diversified enough to survive the economic slump, they say.

Robert Saunders, an analyst with Eastern Management Group, says the Bells have played fair, because it's in their best interest not to be fined or denied carrier status in certain areas.

"There's nobody in the smoky back rooms thinking of ways to [hurt] the DLECs," Mr. Saunders said. "I don't think it's an industry conspiracy."

But, Mr. Saunders says those CLECs that have gone through the effort to build their own facilities independent from the Bells are doing well financially because they are less dependent on the services of the Bells, or anyone else. Mr. Saunders says this has become especially apparent since September 11, when many of the Bells' systems in New York were damaged.

Link Hoewing, Verizon's assistant vice president for Internet and technology policy, says 40 percent of Verizon's DSL business comes from DLECs that use Verizon's network to provide their own service, so to squeeze out competitors would be bad for business.

"I think we've provided good access to our competitors," he said.

Mr. Hoewing concedes the opening of networks hasn't gone as smoothly as possible, but he attributed that to the nature of the networks, which were not designed for DSL.

"DSL is an inherently difficult technology," Mr. Hoewing said.

Meanwhile, several bills have been introduced in Congress that could alter the broadband landscape. The most notable is the Tauzin-Dingell Bill for its sponsors, Rep. Billy Tauzin, Louisiana Republican, and Rep. John D. Dingell, Michigan Democrat.

The bill would eliminate regulations from the 1996 Telecommunications Act that force Bells to prove they have opened their local monopolies before they can provide long-distance and DSL service in that area.

The Bells are pushing for the bill, arguing that it would speed deployment of DSL service and allow them to compete equally with cable companies.

But local competitors say undoing regulations would eliminate one of the big incentives the Bells have to opening in their markets. They have responded with support of the Telecommunications Competition Enforcement Act, a bill that would impose more severe penalties on the Bells for not complying with the Telecommunications Act and keep intact regulations requiring proof of network access.

The Bells still control 92 percent of local phone service nationwide, but that number is decreasing, analysts say. Many consumers are now taking advantage of voice services offered by cable companies, and wireless phones have replaced landlines in many homes.


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