Sprint expands reach to big business

The company begins offering high-speed Internet services--with faster speeds and extra features. It could boost gross margins, but will it eat into its current business?

3 min read
Sprint has expanded its line of high-speed Internet services to include faster speeds and extra features in a move to attract large businesses.

The telecommunications company said Friday that it has improved its Sprint Business DSL (digital subscriber line) service in 32 markets, including major cities such as New York, Boston and San Francisco. Sprint, which previously catered only to small businesses, said it will now sell large businesses a range of speeds for DSL access, bundled with other services.

The new offering is intended to boost gross margins, because business customers are traditionally more profitable. But it could end up eating into Sprint's own business of offering T1 lines for Internet access.

"The better gross margins in business services is a big part of why companies are going after this market," said Jupiter Media Metrix analyst Dylan Brooks. Brooks said gross margins for business DSL access are usually around 50 percent, while the business of consumer DSL access yields margins closer to 25 percent.

Sprint said it is offering three speeds for the service: 4mbps downstream and 512kbps upstream, 1.5mbps downstream and 384kpbs upstream, and 512kbps downstream and 512kbps upstream. Sprint hasn't revealed prices, but the company said there is no flat rate because it bundles the new DSL access plans into packages that include other services such as long-distance and WAN (wide area networking) capabilities. The service comes with the promise of 99.9 percent network availability.

The new services come after those of competitors such as BellSouth, which began offering a similar service in May. SBC Communications, Covad Communications and Verizon Communications also offer DSL services for business customers as they target customers for higher-priced services. The concern when BellSouth announced its plan was that the company would have trouble upgrading its small-business customers and would end up competing with its own, lower-priced offerings. BellSouth has not said whether this is indeed happening.

Sprint spokeswoman Barbara Mellott said the company plans to target large businesses in its 32 markets, but the service provider has no plans to upgrade the company's existing small-business customers. Sprint's DSL services for small businesses offer 8mbps downstream and 1mbps upstream for a flat rate of $159.99 for two years, Mellott said.

The new service may undercut Sprint's business of offering dedicated T1 lines for Internet access, however.

Sprint emphasized in its press release Friday that the new service is designed to allow businesses to connect multiple locations and link telecommuters to a company's internal network, something that has typically required a dedicated T1 line for security reasons. Sprint said that the new DSL service can be combined with the company's VPN (virtual private network) service for remote offices to give large businesses an encrypted connection "for a lower cost than traditional forms of dedicated access."

"This is a cost-effective alternative for companies that have a dedicated T1," Mellott said. The service could be up to 50 percent cheaper than a T1, though the services don't compare on an apples-to-apples basis, she said.

"DSL services will and already have eaten into the T1 market," Brooks said. But companies that require "five nines" or 99.999 percent reliability, as opposed to Sprint's offering of only "three nines" or 99.9 percent reliability, aren't likely to switch over to DSL, he said.