DSL’s Value in the U.S.

Despite the fact digital subscriber line (DSL) service is available in most
parts of the U.S., the number of new users continues to drop every year, a
fact that’s prompted everyone from the incumbent telephone companies to the
Federal Communications Commission to Congress to weigh in with the cause
for drop off.

The way some analysts see it, the answer might be just a little more simple
than what corporate America and legislators make it seem. Judging by the
booming broadband business foreign countries are enjoying today, it all
comes down to price.

According to Dave Burstein, author of the popular newsletter DSL Prime, a lot
of the blame rests with the government’s attempt to deregulate the telecom
industry, or “harmonize”
it, in the words of Michael Powell, FCC chairman.

He points out that since Powell took over at the FCC, DSL and cable
Internet prices at major carriers like SBC Communications
and Verizon Communications have increased 25 percent, an
increase that’s keeping new subscribers from signing up to the service.

“Price seems to be the key determinant with demand; I don’t like that
conclusion but the data is strong,” Burstein said. “Two-thirds (of the DSL
in the U.S.) is SBC and Verizon, and price is what’s shrinking demand.”

Last year, the U.S. lagged behind most other industrialized countries in
the world (and many third-world nations, too), with a DSL growth rate of 62
percent, according to DSL research firm Point-Topic. The number stands in
marked contrast to Western Europe’s 298 percent growth, 166 percent growth
in the Asia-Pacific region and the Middle East’s 700 percent.

While it can be successfully argued those countries are getting a late
start to the broadband game — after all, America’s been in the DSL
business for years now — consumers overseas are buying DSL accounts at a
much healthier rate.

Asia is the poster child for the DSL industry, with more than half of its
homes using a DSL connection. According to the Korea Network Information
Center, the country ended 2001 with almost 4.7 million DSL accounts, almost
11 out of every 100 people in the country. In Hong Kong, five people out
of every 100 have DSL.

In our corner of the world, according to the statistics,
Canada has more than double the DSL subscribers per capita than the U.S.

All best the U.S. when it comes to broadband, and some have even
less-stringent regulations applied to their telecom industry, notably in
the Asia-Pacific region. What they all have in common is lower prices,
something incumbent local exchange carriers (ILECs) in the U.S. can’t seem
to lower.

When asked about DSL pricing at Verizon Communications, one of the two
largest DSL providers in the U.S. (SBC Communications is the other),
spokesperson Bobbi Hensen pointed to the fact the service was only a little
bit more than the cost of an additional phone line and dial up Internet

She also pointed out the price increases are coming from cable networks,
not in DSL, though price increases could result as premium services are
introduced to its DSL service.

“When is (DSL pricing) going to be too much?” she said. “I think it can
only be too much if it’s priced higher than it’s value. We’re finding that
people really do feel that it’s priced right for the value.”

Current pricing at both SBC and Verizon is in the $50 a month range, a
price both carriers have maintained for about a year now. Compare that
with Japan’s DSL service, Yahoo! Broadband, which costs $22 a month, or
Canada’s rate of roughly $30 monthly rate.

Legislators so far seem to be in favor of low-interest loans and
deregulation to answer broadband’s woes in the U.S.

Since the quiet defeat in the Senate of the oft-maligned Tauzin-Dingell
Broadband Bill after passing the
House of Representatives, two other big-name-sponsored bills have been
introduced. “The Broadband Telecommunications Act of 2002,” introduced
by Sen. Ernest Hollings Thursday, and the “Broadband Regulatory Parity Act
of 2002” introduced
Tuesday look to, in one way or another, make DSL deployment easier on carriers.

Covad Communications, a data competitive local exchange carrier (DLEC)
rejuvenated by its emergence
from Chapter 11 bankruptcy, is set to put the pricing theory to the test,
rather than wait for regulatory guidance or favors.

At it’s first quarter financial conference call Thursday, the carrier said
it would be reducing its DSL service by as much as 20 percent in the coming
months. Officials at the carrier were mum on the details, saying only the
plans are in the works and a release would be coming out shortly.

It’s a second attempt by the company to do what it tried to do several
years ago — beat out the competition (the ILECs) by making up profit
margins lost with price reductions in the form of market share.

“Covad’s (decision) was a smart, gutsy move,” said DSL Prime’s
Burstein. “Once you build a network like Covad’s or Verizon’s your cost
for each extra customer is less than $20 per month. So your task is to fill
it up, quickly.”

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