Changing Targets

VoDSL attention turns to Bells

The upheaval in the digital subscriber line market has continued for months, and independent carriers — Covad Communications, NorthPoint Communications and Rhythms NetConnections — are feeling the pain. As those carriers continue to cut back purchasing, the equipment manufacturers are getting squeezed as well.

In particular, makers of voice-over-Digital Subscriber Line (VoDSL) gear are in agony. Companies such as Accelerated Networks, CopperCom, Jetstream Communications and TollBridge Technologies that spent enormous sums to acquire independent carriers as customers are now looking to the regional Bells for salvation.

"The Jetstream approach was initially to the [independent carriers], and the initial reason was it was a market segment that moved quicker and had the potential to both make decisions and implement solutions on a faster track," says Stephen Gleave, Jetstreams vice president of marketing. "Plus, [those carriers] were looking to address a business segment that had been previously underaddressed by the RBOCs [regional Bell operating companies] — the small to medium [-sized] businesses that may have felt a little neglected."

An upstart in this industry, General Bandwidth, made waves in October 2000, when SBC Communications venture capital arm made a significant, though unquantified, investment. SBC is the largest DSL provider in the U.S., and its interest in General Bandwidth came as a surprise because, until then, few had even heard of the Austin, Texas, VoDSL gear maker. General Bandwidth was barely a year old and had only begun shipping product a few months before the investment.

But what attracted SBC was General Bandwidths goal from the start to cater to incumbent carriers. The companys advantage, says General Bandwidth Chief Executive Brendan Mills, was that it arrived fashionably late to the VoDSL party.

While the VoDSL market was shaping up, Mills and the executives he brought with him to General Bandwidth were sharpening their teeth on DSL central office and customer premises equipment (CPE) for another company they founded, called NetSpeed. Cisco Systems, one of the top three DSL equipment suppliers, acquired NetSpeed in 1998 and continues to manufacture its gear.

Mills says he learned a valuable lesson at NetSpeed: Feed the bigger fish first.

"When we were acquired by Cisco, I ended up running a bunch of the [independent carrier] sales, when I just got off selling to [RBOCs] at NetSpeed," Mills says. "The thing I noticed was U S West was talking about bringing customers up, and when I talked with competitive carriers, they just talked about footprints and colocations."

When Mills launched General Bandwidth in 1999, he began with the premise that Bell companies would be the dominant players and VoDSL would become a residential commodity.

CopperCom, which has been in the market for several years now, signed the most impressive deal with a Bell company to date in August 2000, when Verizon Communications announced that it was testing VoDSL in Dallas using CopperCom gateways and CPE.

Mills concedes that even General Bandwidths future is only as certain as that of VoDSL as a whole — and right now, thats not certain at all. Two years ago, the industry was hailing VoDSL as a technology ready to take hold of the voice market in the next two years. In 2001, VoDSL remains a valuable application for the small to midsized businesses that can get it, and an extremely niche application for consumers that can find it.

So what about two years from now? Telecom consulting company TeleChoice predicts the market will expand from 40,000 VoDSL-enabled lines in 2000 to 550,000 by the end of 2002 and to 2 million by the end of 2004.

Today, up to about 12 telephone numbers can ride a single DSL. But in research completed last summer, before the DSL shakeout began, TeleChoice estimated that by 2004, the average DSL will carry just four numbers. This indicates that VoDSL is gaining greater traction in the consumer market, where customers are likely to have only a couple of home phone numbers, as opposed to small businesses that may have a couple of dozen lines.

Major deployments of VoDSL by independent carriers that were expected in the second half of 2000 did not happen. TeleChoice analyst Adam Guglielmo now expects those rollouts to begin in the first half of this year, and says that VoDSL market projections in general have been pushed back by about six months.

Guglielmo is also skeptical about the strategy of relying on Bell companies to carry the torch of VoDSL. He explains that its clearly not in their best interest to deploy the technology at all. What corporate executive who values his job would widely deploy the same service his company already offers, only cheaper?

Independent carriers "were more likely to try new things, because they werent cannibalizing existing services," Guglielmo says. "Incumbents already offer a voice service, so deploying VoDSL means one arm of an ILEC [incumbent local exchange carrier] selling away from another arm. Theres politics there."