Reading the Tea Leaves
Data, Wireless Broadband Revealed as
Future for CLECs
By Gail Lawyer
Posted: 01/2000
When the telecom seers take their last sip, the tea leaves at the bottom of the cup will reveal that the future is data. Whether delivered via fiber, DSL or wireless, customers will continually be offered new packages of services that are driven by the need for high-speed Internet access, reliable delivery of gobs of data at the speed of light and traditional voice telephony services.
The future also holds increased competition as BOCs move outside their traditional territories and cable networks are upgraded for alternatives in the residential telephony market.
No matter what kind of services or bundles of products carriers deliver in the coming millennium, no one doubts the offering will hinge on data. Data has been, and will continue, driving the market, says New Paradigm Resources Group Inc. (www.nprg.com) in its recently released "CLEC Report 2000."
Total CLEC service revenues in 1999 were $23.7 billion, with about 40 percent--or $9.5 billion--coming from the data services sector, according to the "CLEC Report." Revenues from data will only continue to skyrocket. New Paradigm forecasts that data services provided by CLECs will grow 215 percent during the coming year.
Behind the data explosion is the development of services provided over high-speed access technologies, such as wireless broadband and DSL.
Many pundits believe 2000 and 2001 will be the breakout years in the race to have a widespread DSL offering. They believe that wireless broadband could potentially have the most impact.
"I think that's the most exciting area to keep ahead of," says Robert Rosenberg, president of The Insight Research Corp. (www.insight-corp.com). In fact, Insight has predicted that services provided by LMDS and MMDS license holders will account for about $523 million in revenue in 2000 alone.
Rosenberg also believes MMDS spectrum was what motivated MCI WorldCom Inc. (www.wcom.com) to acquire Sprint Corp. (www.sprint.com). Sprint spent about $1 billion for MMDS licenses that cover about 30 percent of U.S. households, whereas AT&T Corp. (www.att.com) spent more than $100 billion to reach the same percentage of homes with its purchase of cable television providers.
At press time, even AT&T reportedly was seeking to broaden its access strategy by reviving its plans for offering telephony and Internet access via wireless means. The Washington Post reported in late November the company would spend $1.2 billion on a wireless play, which had yet to be officially announced.
While there was much excitement--and soaring stock prices--surrounding DSL ser-vices last year, the number of lines in service was small by telecom standards. Consultancy TeleChoice Inc. (www.telechoice.com) expected there would be only 595,000 lines installed by the end of 1999. Forecasts show DSL growing to 5.1 million lines in 2001, and more than 9 million during 2003.
This will be the year that significant growth takes place, as data CLECs hit their stride and the Bell companies continue with widespread deployment plans. "We're entering a new pace of competitiveness as BOCs take it more seriously," says Jilani Zeribi, senior analyst at consultancy Current Analysis Inc. (www.currentanalysis.com).
SBC Communications Inc. (www.sbc.com) is one Bell company putting its money where its mouth is. Over the next three years, SBC plans to invest $6 billion to extend DSL to 80 percent of its customer base--a total of 77 million households. In addition, in late 1999, SBC claimed to be the first company to sell more than 100,000 DSL lines.
Other national carriers are in the midst of widespread deployments. AT&T plans to provide DSL service in 100 markets nationwide in conjunction with Covad Communications Co. (www.covad.com). GTE Internetworking (www.bbn.com) says it will offer DSL outside its parent company, GTE Corp.'s (www.gte.com) telco territory. GTE Internetworking is partnering with Covad, NorthPoint Communications Group Inc. (www.northpointcom.com) and Jato Communications Corp. (www.jatocom.com).
The FCC's November 1999 line sharing decision (see "The Rules") will also help boost deployment of high-speed Internet services over the existing copper infrastructure.
Pundits believe line sharing will mostly benefit the data CLECs in the form of larger margins per line. The boost will come through significant reductions in monthly loop costs, as well as shortened provisioning time. Data CLECs won't have to pay to have separate lines installed to the customer premises if all existing copper loops are in use. Monthly costs of leasing circuits likely should be reduced by almost half because the CLECs will need to use only the data portion of existing lines.
Though line sharing tests have been completed by data CLECs in Minnesota and a few other states, it likely will be mid-2000 before there is a significant implementation of line sharing, according to a Nov. 18, 1999, report from market analysts at Ferris, Baker Watts Inc. (www.fbw.com). The report notes that widespread implementation of line sharing could be slowed by state regulators' procedures regarding pricing and other deployment-related matters.
Line sharing will also allow data CLECs to branch out beyond the business market. "Data CLECs have said their salvation is in the residential market, but not for a while because they don't have ubiquity yet," Zeribi says. "Volume is what they think [will prove out their business model]." Zeribi says Covad believes eventually the lion's share of its business will be residential. Along the same line, NorthPoint is testing the residential waters with market trials of a consumer class DSL service at speeds of up to 416kbps.
There also are several young data CLECs with aspirations of servicing smaller cities. For example, Jato is targeting small and medium-sized businesses in second tier cities and New Edge Networks (www.newedgenetworks.com) is targeting cities with populations of less than 250,000 in all 50 states during the next two years.
Another way carriers may seek to improve their margins is by using DSL lines to provision more than just high-speed Internet access. Many companies are working the kinks out of their plans to offer both voice and Internet access over a single DSL line.
Industry analysts don't believe voice over DSL (VoDSL) will have a great impact in 2000. Technical and service rollout issues could prolong the introduction until sometime in 2001, Zeribi says.
Insight's Rosenberg believes adding voice to DSL is just "noise in the system" at this point. DSL for Internet access "has enough pent-up demand on its own. They need to get DSL out and get tens of thousands of lines" before adding other capabilities, he notes.
While some residential customers will see a choice of local telephone provider, those choices will remain limited in number and scope for at least the next few years.
"Cable companies have a long way to go before they're ready," Rosenberg says. Cable telephony, which typically includes voice and television programming over the cable infrastructure, is being offer-ed in pockets around the United States. AT&T has limited trials in California and Illinois. New entrant RCN Corp. (www.rcn.com) is busily build-ing out its networks and marketing services. RCN is offering telephony, cable TV and Internet access in communities along the East Coast and in California.
Another residential alternative is Broadview Networks (www.broadviewnet.com). Broadview is using unbundled networks elements in concert with its own switching and back office systems to deliver communications services in the Northeastern United States. Broadview recently launched a package for residential customers in New York that includes local, regional and long distance calling, as well as Internet access, for about $30 a month.
Residential customers need not stay tethered to the landline system if they're seeking alternative voice telephony providers. Many PCS providers, such as AT&T and Sprint, are offering substantial wireless minutes that can be used for calls nationwide. "These plans take the long distance rates out of the picture. They bury it in the cost of the minutes," Rosenberg says.
Prices for bundles of minutes will likely keep dropping this year, soon making wireless a comparable alternative to landline service, says Eddie Hold, senior analyst at Current Analysis.
As the telecom industry enters the new millennium, ASP may replace DSL as the big money buzzword. Providing computer applications that can be downloaded from the Internet is a concept may companies are touting, but very few are doing well, analysts say.
"There will be more hype, but little meat" in 2000, says Zeribi. "I don't think people have the model right yet. There's a lot of technological and cultural issues that need to be worked out."
He believes a true application service provider must do more than put Microsoft Word on the Internet. "There's a lot of integration with the web that needs to be done," he adds.
Several companies have boasted ASP offerings. There's a deal between Sprint and Deloitte & Touche LLP (www.dttus.com); and there's another between Qwest Communications International Inc. (www.qwest.com) and KPMG Peat Marwick (www.us.kpmg.com). Zeribi believes these are not true ASP offerings, but rather more traditional private applications that are outsourced.
The future of ASP offerings is at the mercy of the computer industry, say some industry analysts. "It will go somewhere if they break up the monopoly at the desktop," notes Rosenberg. And that will not happen until the antitrust suit against Microsoft is resolved, he adds.
