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Report: DSL Equipment Upgrades to Drive Growth

DSL customer premises equipment (CPE) -- including gateways and routers -- represents an opportunity for telecom equipment makers to improve margins, according to a new report from the Yankee Group.

"Despite falling prices and new entrants into this competitive arena, the DSL (CPE) market opportunity will continue to be strong over the next five years," said Matt Davis, a broadband access analyst with the Boston IT research firm.

Gateways and routers, which feature built-in DSL modems that share broadband connections in homes and businesses, are replacing basic modems in DSL installments, Davis said. As the technology advances, and the number of subscribers rises, helping users transition to new equipment could bolster margins.

Covad Communications is a good example. Earlier this week, they announced a new bundled voice and DSL package for small business users.

It requires new CPE (which Covad calls an Integrated Access Device) to be installed at a customer's office. It comes with four or eight phone ports as well as an Ethernet connection for a local area network. Covad buys the boxes from an equipment supplier.

The box combines voice (both compressed and uncompressed) and data trafic and then sends it out over a symmetric digital subscriber line (define) to the network.

Not surprisingly, Asia-Pacific is driving much of the growth in DSL CPE. Thanks in part to government subsidies, South Korea leads the world in the percentage of its population that has high-speed Internet access.

Yankee predicts that region will buy more than $1 billion in DLS CPE next year. The North American market, which faces stiffer comptetition from cable broadband, will see revenues drop below $500 million, and hold there over the next four years.

Meanwhile, Europe will increase from approximately $570 million in 2002, to just over $900 million in 2007, and Latin America will hover around the $70 million mark for most of the forecast.