DSL Disillusionment Still Order of the Day

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You would think that broadband providers would have gotten it right by now, particularly with so many small and medium sized businesses (SMB) as well as the branch and remote offices of large enterprises adopting DSL and cable modem in high volume.

Yet many of the same poor or no service situations that plagued the field a few years ago remain the order of the day. Businesses are left without DSL service for days on end, weeks and even months passing before a connection can be established, and even large areas within major metropolitan areas still don’t offer DSL and/or cable.

Case in point: Last month I moved my business from a suburban area on the edge of a city and hoped to continue utilizing a cable modem network at the new location. But the cable provider with the monopoly on servicing my new office, Adelphia Communications Corp. (Coudersport, Pa.), doesn’t provide it in my neighborhood. Am I in a remote writer’s cabin off in the woods somewhere? No, sitting here at my desk I have a wonderful view of the downtown Los Angeles skyline just four miles away.

Is DSL any better? While I only had to revert to dial-up for two weeks and was quite impressed with the ease of use of the SBC DSL self-install/networking kit, others are not so fortunate. A few months earlier, Joe Zwers moved his copywriting business and attempted to keep his Earthlink DSL service in order to maintain email continuity.

Based on difficulties establishing DSL service two years prior (installation took six weeks), he confirmed with Earthlink that service would be live by the time of the move and paid to have the phone lines activated two weeks before the move to ensure service availability. He called Earthlink one week later check on the status of his order.

“I was told it was Earthlink policy not to set up the account at a second location until the DSL equipment was disconnected at the first location,” said Zwers. “I discovered that it probably would take 10 business days after phone disconnection before Earthlink could initiate the process of establishing DSL at the new location, and then it would take several more weeks to have DSL.”

He spoke with Verizon Communications, Inc. two weeks prior to the move. They offered service within three business days, but failed to deliver as promised. “Despite my best efforts the office had to return to dial-up for over three weeks before finally establishing a DSL connection,” said Zwers.

Not Slowing Down

Such situations, commonplace three years back, remain a big problem for broadband and little real progress appears to have been made in resolving delivery issues. Yet that hasn’t curtailed demand.

According to the Telecommunications Industry Association (TIA), revenues for DSL and cable modem are expected to grow 40% this year, reaching $13.8 billion. Of these two technologies, the cable modem infrastructure has greater overall penetration, potentially reaching 70% of the U.S. population, compared to 45% for DSL. Accordingly, there were nearly 2.5 million cable modem subscribers at the end of 2002, 18% more than DSL.

While cable modem dominates the consumer market, DSL rules the business arena. Why? Every business has an existing phone line, while only 10% have cable connections. SMB spends an average of $160 per month for DSL service, nearly four times as much as the $40 average paid by consumers. As a result, total revenues for DSL are 10% higher than cable modem. And as phone companies expand their coverage, the TIA estimates that DSL revenues will hit $14.5 billion by 2006, nearly triple last year’s figure and twice the projected income of cable in 2006.

The Problem

Certainly, broadband connections offer the most cost-effective means of provisioning fast Internet access for small businesses, remote offices and an increasingly mobile workforce. But the “on ramps” to the information superhighway are plagued by gridlock, “under construction” signs and the bottom line is you can expect delays of a month or more.

So why is it still a problem after all these years? Well, there are two main components. One is the technical aspect and the other is the financial. Although DSL and cable utilize pre-existing wired infrastructure, they both require expensive additional backend equipment and, in some cases, correcting the wiring to bring it up to the ability to carry the higher frequency transmissions that broadband requires. Not so long ago there was also a shortage of qualified technicians to install broadband, but though still an issue, self-installation kits today are finally getting good enough that most DSL users can figure them out.

Another vital factor is money. Telecommunications providers have already spent more than $100 billion on upgrading systems to accommodate broadband. But broadband is not yet financially viable. Let’s take the example of Earthlink, since it is the largest independent ISP and its revenues and expenses are all Internet-related (The other major ISPs such as AOL Time Warner and MSN have other business activities which muddy the picture).

Earthlink had a net loss of $148 million last year on income of $1.36 billion. Its stock price has dropped from $55 to $5, making it harder to raise money for additional equipment.

AOL Time Warner’s stock has seen a similar 90% drop in price. Cable giant Adelphia is undergoing Chapter 11 bankruptcy organization as is another former high-flier, Global Crossing. And AT&T abandoned broadband altogether after buying MediaOne and other broadband vendors. Last year it sold its cable modem division to Comcast. So until the financial picture improves, we can expect to see little money flowing into this sector to fund capital expenditures.

Regulatory uncertainty, too, has been putting a chill on investments, according to telecommunications vendors.

“The technology is there, the markets are there, but the policy is not yet there,” said Verizon’s Senior Vice President for Public Policy and External Affairs, Tom Tauke. “The investment needed for that last-mile build-out of fiber to the customer premises will never materialize as long as investors live with the fear that future regulation will take away their gains.”

But that may soon change. On Feb. 20, the FCC approved part of the changes the industry part of what it asked for. It is too early to know if that decision will free up the investment money needed to make broadband available everywhere. Until then, if you need broadband for your business, expect it to take a few weeks before service is available. If you already use DSL or cable modem in a business setting, best not to move. But if you do, don’t be too surprised if you end up back on dial up for a few weeks.