February 2000

BY JIM MACHI

Our industry thrives on hype. Remember video on demand — the telco vision of a virtual video store offering an entire library of movies, ready to be delivered direct to your TV 24 hours a day, seven days a week, simply by clicking on your remote? I’m still waiting for someone to pass me the remote on this one. How about network computers, the anti-Windows holy grail of Larry Ellison and Scott McNealy? Have you fired up your diskless, Java-based workstation recently?

These and other ballyhooed technologies seem to have imploded under the weight of their own hype, leaving behind only stranded investments (not to mention well-compensated consultants, lawyers, and accountants). But failed technology concepts don’t automatically die. Sometimes markets change, new applications emerge, and vendors become more aggressive —causing yesterday’s failure to mutate into tomorrow’s successful product.

So it is with digital subscriber line (DSL) technology. Originally conceived of as a way for the telcos to compete with cable companies in video, DSL has now found its place as a high-speed technology for Internet access. But that’s not all. Using some of the latest DSL technology, you can offer multiple voice channels on top of the data. The buzz on DSL was already strong. Now, with voice services, it threatens to go off the charts. The difference is, this time there really is substance underneath the hype.

APPROACHING CRITICAL MASS
I’m bullish on DSL for several reasons. First, a critical mass of vendors and service providers back it. Also, DSL can address real market needs. And even Wall Street and Washington regulators are promoting it in their own ways. None of this could have been said about, for example, video dial tone in the mid-’90s, or ISDN in the mid-’80s.

Consider the service providers. Huge incumbent local exchange carriers (ILECs) including Bell Atlantic, SBC, and GTE have announced aggressive rollout plans for DSL. The word “plans” is key. The ILECs are great at announcing ambitious plans; follow-through is another story. The numbers show that actual ILEC deployment is quite low, roughly 220,000 lines according to the most recent data from Telechoice. Is this another ILEC head fake? Is DSL d�ja vu all over again? To use my favorite example, is this another video dial tone?

I think not. For one thing, there are too many other forces at work. For example, regardless of what the ILECs do, the new DSL providers like Covad, NorthPoint, and Rhythms are quickly moving forward. Also, they are being aided and abetted by the FCC, which desperately wants real competition in broadband, and by Wall Street, which sees a tremendous upside to the entire broadband market. The recent FCC ruling on line sharing (The Advanced Services Third Report and Order, November 18, 1999) may have an even more dramatic pro-competitive impact, going beyond unbundling local loops to unbundling the spectrum in those loops. Consider this scenario envisioned under the FCC ruling: An ILEC providing baseband POTS, with competitive carriers offering other services on the higher frequencies — all over a single twisted-pair loop.

And let’s not forget the cable companies who already have a lead in the residential broadband market. With AT&T making a huge play here, the ILECs have to be hearing threatening footsteps. Put it all together and it’s clear that this time, the ILECs must actually make good on their plans. For the first time, they have real competition — and their market is at risk. I can tell you, customers aren’t going to wait. You don’t need a market survey to know that everyone wants higher-speed Internet access. I don’t know about you, but I’m not going to wait for my local telco to offer DSL; I’m going to the first guy who gives me a good deal. (In my case, it was the cable company. So far, the service is great!)

VOICE OVER DSL: THE KILLER APP
You would think that the demand for high-speed Internet access would be enough to spur rapid DSL deployment. This is partially true, but it is increasingly difficult for CLECs to get enough margin on data services when they have to lease circuits from the ILECs at or near the roughly $39.99 price the market demands. Enter Voice over DSL (VoDSL). Innovative startups like Jetstream, CopperCom, and TollBridge have developed technology that allows a single DSL circuit to carry up to 16 voice channels in addition to providing high-speed Internet access.

The service relies on an integrated access device (IAD) at the customer premises and a VoDSL gateway in the network. At the customer site, the IAD combines voice and data traffic into a stream of ATM cells that are sent to the CLEC’s ATM switch. The switch sends the data traffic out over the Internet and the voice traffic to a VoDSL gateway. The gateway connects to the circuit-switched public network infrastructure using a standard GR303 interface to the Class 5 switch.

Notice I said nothing about IP. This is not voice over IP. The voice traffic goes out over the regular old circuit-switched network. The customer has full access to standard Class 5 switch services such as CLASS, Centrex, and caller ID. The only funny stuff occurs between the subscriber premises and the VoDSL gateway. You can see why the industry is salivating over VoDSL, and why it can be a revolutionary service for the SMB market. VoDSL is another reason to be bullish on DSL.

HURDLES TO JUMP
But the road isn’t all smooth. Although there are two standardized versions of asynchronous DSL (ADSL) — G.DMT and G.lite — carriers and vendors are pursuing a bewildering array of standard and non-standard versions for different markets and geographies. At a recent DSL conference, one of the experts noted there were 17 different flavors of DSL currently in the marketplace. Voice over DSL is not standardized at all. The result is market confusion, lack of interoperability, and delays in achieving scale economies, volume pricing, and widescale deployment.

I haven’t even mentioned the fact that significant segments of the population may not be able to get DSL under any circumstances because they are too far from the central office (CO), or because of line impairments, digital loop carrier systems, or other loop issues. Then there is the issue of pricing. DSL prices vary widely from provider to provider, with no consistency in the cost elements such as installation, monthly service, CPE rental or purchase, and other aspects of the service. Again, this means more market confusion.

DSL TODAY
Let’s take a reality check. Today, the DSL market in the US is miniscule, as you can see from the chart. But I’m confident the hurdles will be crossed and we will see a rapid growth in the service. Who wins? First, the consumer, who gets to trade in busy signals and V.90 connections for always-on broadband access. The small business owner also wins, getting a big-company, T1-quality pipe for a fraction of the cost. Another winner is the service provider, for whom DSL is genuine alchemy, turning copper into gold. And don’t forget all those investors who have managed to place bets on the high-flying broadband startups.

The bottom line? There are only 274,755 DSL lines in service today — but that’s 274,755 more than video dial tone ever reached. DSL is for real. Now pass me the popcorn and the remote.

Jim Machi is director of product marketing, Internet Telephony, for Dialogic Corporation (an Intel company). Dialogic is a leading manufacturer of high-performance, standards-based computer telephony components. Dialogic products are used in fax, data, voice recognition, speech synthesis, and call center management CT applications. The company is headquartered in Parsippany, New Jersey, with regional headquarters in Tokyo and Brussels, and sales offices worldwide. For more information, visit the Dialogic Web site at www.dialogic.com.