IP: Cringely on DSL or Sorry, Wrong Number Why Your Phone Company Hates DSL

[Dave Farber <dave () farber net>]

http://www.pbs.org/cringely/pulpit/pulpit20010222.html
Sorry, Wrong Number
Why Your Phone Company Hates DSL
By Robert X. Cringely


My next-door neighbor is an engineer who works for Cisco Systems doing
something having to do with optical networking. Like me, he has been
frustrated by the problems of rural Web surfing. But unlike me, he is honest
about his situation. "I'm a bandwidth junky," he says. Give the man DSL and
he'll want a T-1. Give him a T-1 and he'll lust for a T-3. And the truth is
we are all that way. Everyone I know would like a faster Internet
connection. That's the attraction of DSL, which is the fastest connection at
a good price that most of us can get. Yet DSL is to many people a
disappointment because it can be so hard to get in the first place and often
hard to keep running. Both of these problems can be traced back to a source
that isn't your ISP and probably isn't your DSL provider, either. The
problem is your phone company.
Avram Miller was not long ago a vice president of Intel charged with
managing the company's $1 billion venture portfolio. Now he is out of Intel
running his own Avram Miller Company doing much the same work. Avram lives
in the next valley over from me in a rammed earth house on a hill above the
Kenwood winery. Avram, too, is a bandwidth junky. Going further, he's a
bandwidth junky with money. And that makes it especially frustrating that
from his hilltop perch he can actually see, only a quarter mile away, the
telephone company central office (CO) that serves his home, yet Avram Miller
can't get DSL service. His phone company (Verizon) doesn't offer it from
that CO and there is no other DSL provider in the building, either. And
while this situation bugs the heck out of Avram Miller -- a guy who is
pondering starting his own DSL company just to get DSL -- it doesn't bother
the phone company at all. If anything, this is the outcome many phone
companies prefer. 
To understand this phenomenon, you have to think about how the
telecommunication business has changed in the last decade. In the beginning
there was Ma Bell, and she was your phone company pretty much anywhere in
America. Then, in 1983, AT&T tired of a long anti-trust fight with the
government and proposed to end the case by splitting itself into many parts.
AT&T would retain the long distance phone service -- where the real money
was being made back then -- while local service would stay with a number of
Regional Bell Operating Companies (RBOCs). Judge Green said yes, and the
current phone market was born.
Years passed, and the RBOCs also began to lust for some of that lucrative
long distance revenue. So they asked the Federal Communications Commission
for the right to enter the long distance market. The price of entry was
defined in the Telecommunications Act of 1996, which said that the RBOCs
could enter the long distance business IF they would allow other companies
to compete for local phone service and IF they would deploy "advanced
network services," which means DSL.
So the RBOCs -- your local phone company -- became ILEC's (Incumbant Local
Exchange Carriers), and a new class of local phone companies was born called
CLECs (Competitive Local Exchange Carriers). CLECs have rack space in the
Central Office run by the ILEC. CLECs use the ILECs phone lines, too. But
most CLECs don't do much voice service. Most of them just provide DSL.
Covad, Northpoint, and Rhythms are all examples of CLECs that concentrate on
DSL service. 
The ILECs have not generally been very kind to the CLECs, and give them as
poor service as possible. They are, after all, competitors. But even worse,
from the perspective of the ILECs, is the fact that their original reason
for entering into this unholy alliance -- to be able to sell long distance
service -- isn't, itself, the money maker it used to be. Long distance,
which inspired not only the Telecom Reform Act of 1996 but also the AT&T
breakup of 1983, is today a business with almost no profit. That's exactly
why AT&T has spent over $100 billion to enter the mobile phone, cable TV,
Internet, and local telephone markets -- their long distance business sucks.
The decline of the long distance business has changed the competitive
landscape for other services, too, as the ILECs adjust. And that adjustment
is what this column is all about. Right now most CLEC and DSL stocks are in
the toilet, which is exactly what the ILECs want. They want weak competitors
and horror stories about broadband. Their plan has worked perfectly. Not
that the ILECs have engineered our slowing economy, but this weakness among
the CLECs mean there is no pressure for the ILECs to beef up their own
broadband initiatives, so DSL doesn't make it to Kenwood.
There is gear available that would allow DSL almost everywhere, but who
wants to spend that kind of money? The CLECs can't because they're all on
life support. The ILECs don't want to because it'll cut into profits. With
no competitive pressure to do so, why bother?
This is at the heart of why Verizon cancelled its purchase of Northpoint. It
is why Northpoint is suing Verizon, and why some Verizon customers are suing
over delayed DSL deployments. The ILECs actually WANT to delay DSL
deployment. They don't want the technology to succeed too quickly because
that would mean massive upgrades to field gear and cuts into profits. The
only reason why any ILEC built out a DSL product line was because of
competitive pressure from CLECs and that darned Telecommunications Act of
1996, which they wanted so much at the time but now hate.
With long distance dead as a profit center, the CLECs have swooned and the
ILECs are back at square one -- trying to boost profits by not spending
money. Why upgrade when you can charge the same amount for use of a hundred
year-old plant? 
It appears to me that the ILECs are for the most part treating their DSL
service as a loss leader. They've priced it so low to compete with CLEC
offerings that they cannot possibly make any money at it. This is why they
are delaying customer installations. Why not hold that money-losing
installation a few more months until all the DSL CLECs are dead, then raise
prices? The ILECs have obviously learned something from Microsoft.
This is all bad news for a nation of bandwidth junkies. It means DSL will
get to your network later than expected and eventually cost more than
expected. The saddest part of all is that this is a product that will
revolutionize society, yet there are lots of people trying to stop that. 

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