SBC DSL Promo Puts Squeeze on ISPs

Good news for consumers looking to get a great price on digital subscriber
line service in the SBC Communications,
Inc.
service area.

New existing customers may sign-up for basic DSL Internet service from
Southwestern Bell Internet Services,
Pacific Bell Internet Services, or Nevada Bell Internet Services for
under $40 a month.

The SBC (SBC)
deal includes high-speed DSL access, Internet service, a free DSL modem and
free installation, when customers agree to a one-year term of service.

The SBC promotion launched on Valentine’s Day, much to the surprise of its
140 national and regional DSL resellers.

Pacific Bell Internet is SBC’s California affiliate offering the DSL promotion. Pacific Bell has about 70 ISP DSL resellers in its service area that are being squeezed by the PBI deal.

Ariel Communications Group, Inc. is an
independent Internet service provider based in Orange County, Calif. Ariel
supplies hundreds of local businesses with digital connectivity and
high-speed DSL services.

April Josephson, Ariel Communications Group president, said she signed up
with Pacific Bell to become a DSL reseller after the SBC subsidiary
cancelled its ISDN reseller program.

In order to set up DSL service, Ariel had to order an ATM T1 circuit
before it could sign-up any DSL subscribers. Switch setup cost $1,000 and
monthly fees for the T1 feed are about $900 a month. At the time, SBC
restricted resellers from connecting to all of its Central Offices.
Josephson had to handpick five COs out of 32 possible Pacific Bell locations
to provide Ariel DSL service.

Under Ariel’s contract with Pacific Bell, Josephson is charged $39 a month
for each DSL subscriber. Ariel also has to pay $198 for every DSL modem it
installs. SBC’s current DSL promotion through PBI was not extended to its
Pacific Bell DSL resellers, which left Ariel and 70 other California ISPs
unable to compete with the deal.

ISPs like Ariel are in a bind because they lose at least $200 on each DSL
account they activate if they try to compete with the SBC deal and hand out
a free DSL modem. If the ISPs don’t match the deal, they may fail to
sign-up at least 10 new customers each month. If a low-volume DSL reseller
fails to meet its quota, SBC could cancel the reseller’s contract.

Adding insult to injury, Pacific Bell also adjusted its Web site to feature
the low-price DSL deal where its ISP DSL resellers were once showcased.


But don’t count Ariel out of the DSL business. The independent ISP also
resells GTE Internetworking DSL access.

Legal recourse to correct the competitive damage done to the independent
ISPs is limited. Ariel does not intend to file a complaint with the
California Public Utilities Commission because the state agency can only
enforce DSL tariffs, and none have been violated.

The SBC-Pacific Bell promotion is legal because the low-price DSL deal is
being offered through Pacific Bell Internet. Because Ariel is a reseller
for Pacific Bell DSL, which is under a different tariff than Pacific Bell
Internet, there’s no violation of any “equal treatment for competitors”
clause on tariffs.

The CPUC may review Ariel’s forthcoming complaint, but the state agency
does not have standing to remedy the anti-competitive nature of the PBI
promotion.

The Federal Communications Commission
applied the same proposed conditions by which PBI may legally usurp the
California DSL market from competitors to the SBC-Ameritech merger.

As a part of the SBC-Ameritech

deal, SBC has been instructed to create a
new, separate affiliate to provide advanced DSL services in the
SBC-Ameritech region.

The FCC attached the condition to the SBC-Ameritech merger in order to
promote deployment of broadband services. Ironically, rather than leveling
the competitive playing field among DSL providers, the commission razed
independent ISPs ability to compete with incumbent carrier’s Internet
divisions.

SBC reported that it increased its DSL subscribers from 3,000 to 169,000
customers by the end of the last year.

In October, the Texas-based telecom launched a 3-year $6 billion DSL
initiative designed to transform the company into the largest single
provider of advanced broadband services in America.

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