To battle in the high-speed Net access wars, the telephone companies are taking a cue from Teddy Roosevelt: Walk softly, but carry a big stick.
The big stick in this case is called DSL, for digital subscriber line, a technology that delivers data and compressed video signals to consumers' desktops through copper wires at high speeds. It also lets users surf the Net and make phone calls simultaneously over the same phone line.
After experiencing some technical hiccups, not only telco giants but also entrepreneurs are starting to offer DSL around the globe. By next year, analysts predict, the DSL rollout will be in full force, for consumers as well as businesses.
One study by the Pelorus Group predicts that the market will generate $1.5 billion in revenue by 2001 in the United States and $2.9 billion worldwide, a small but rapidly growing segment of the Net access business.
"It's a huge growth market, and it is gaining momentum amid the competition from cable modems and other alternatives such as satellites," said Greg Gum, an executive director for DSL products at US West, the first of the seven Baby Bells to roll out DSL commercially. "This is going to be an interesting race."
And while the high-speed technology saves users' time, it also saves money for the telcos--a key element for winning the broadband race, according to a panel at the Comdex trade show here this week.
"There's no big fixed investment required," said Randy Carlson, an analyst for the Yankee Group consulting firm.
There are drawbacks, however. The technology may not work on phone lines that are situated more than 2-1/2 miles from a central switching office of a telephone company. That may rule out nearly a third of some telcos' customers. The lines cannot have signal-processing equipment, such as load coils used to amplify voices, either.
The telcos also face big marketing hurdles in rolling out DSL. Like the cable television industry, they are used to operating as regulated monopolies, and they have little experience marketing in a hotly competitive industry. Many of the telcos' Integrated Services Digital Network (ISDN) rollouts were marked by customer complaints about slow and indifferent service. In some cases, regulators stepped in and ordered the telcos to improve their records.
Despite the high growth and moneymaking potential of DSL, the Baby Bells' rollout has been decidedly low key. One reason: The Bells are preoccupied with keeping their core local phone business intact in the wake of industry deregulation less than two years ago.
"They're focusing on protecting their core local phone business and getting into long distance," said Bruce Leichtman, another analyst with the Yankee Group.
SBC Communications offers one example. Last week, the company quietly rolled out DSL market trials in both Silicon Valley and Austin, Texas, two of the nation's high-technology capitals, through its Southwestern Bell and newly acquired Pacific Bell subsidiaries. But rather than publicizing both launches at once or touting SBC's dominance in these big tech markets, the company announced the trials on separate days and only locally.
That is not to say SBC is downplaying the importance of DSL to its corporate strategy; but like the fabled tortoise, it seems to be taking the slow but steady approach. "We want to make sure our marketing and packaging are correct," said Pacific Bell DSL services marketing director Paula Reinman. "That's why we're doing a limited introduction." Both Pac Bell and Southwestern Bell plan a commercial rollout of DSL by the third quarter of next year.
Some other Baby Bells are more bold, led by US West. Last month, US West debuted DSL service in Phoenix to 500,000 potential customers, but the company plans to expand it throughout the western United States, including Microsoft's home town of Seattle, by the first half of next year. It is providing access at speeds of 192, 320, and 704 kbps for as little as $60 per month, plus $200 for installation.
Bell Atlantic and Bell South are not far behind. They already are offering market trials in northern Virginia and Birmingham, Alabama, respectively, but both plan commercial launches by mid-1998.
Telcos outside the United States also are rolling out DSL. Last month, Bell Canada began offering asymmetric digital subscriber line (ADSL) access on a wholesale basis to Internet service providers in the Ottawa and Quebec City areas of Canada, the prelude to a gradual rollout through the telco's territory next year. ADSL will provide download speeds of up to 2.2 mbps and an upload speed of up to 1 mbps. The company has held technical trials since October 1996, both in Saint-Bruno, Quebec, and Kanata, Ontario.
"This helps fulfill the vision of the information highway" by allowing customers to download multimedia at fast speeds, said Carol Morgan, director of business development for ADSL services at Bell Canada. "The Internet is not going to be kept alive by text alone."
Europe also is poised for a DSL expansion. British Telecom, Deutsche Telekom, Telecom Italia, and Telia all are expected to offer these services next year. A group of telco, Internet service provider, and computer executives belonging to the ADSL forum met recently in Brussels, Belgium, to discuss the growth potential. One conclusion: expansion in Europe will be spurred on by industry deregulation, just as in the United States.
Telcos are not the only companies embracing DSL technology. In fact, the Pelorus Group report maintains that ISPs will give telcos a run for their money in the battle for DSL customers. It argues that the ISPs can leverage their position as "Internet sources" to capture the minds--and pocketbooks--of businesses and consumers.
UUNet, the giant ISP owned by WorldCom, is one example. In March, the company announced plans for the rollout of IDSL, a hybrid of ISDN and DSL. "Preferred access," as it is called, will provide Net access at speeds as fast as 768 kbps. It also is a potent weapon against the telcos, because it bypasses switches of local phone companies such as Pac Bell. New York City's Manhattan borough will be added to the list of cities by year's end.
"We can fill a niche between ISDN and fractional T1," said Ralph Montfort, manager of network products for UUNet.
Besides the big telcos and ISPs, some start-ups are gearing up to offer DSL. One of them, sources say, is a Silicon Valley company called Covad Communications.
As one industry executive said, "With the telecom act of 1996, the incumbent phone companies are not the only ones that have the ability to roll out DSL."
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