DSL vs. cable: the tortoise and the hare - Industry Trend or Event

Communications News, Oct, 1999 by David Angell

The race is on between cable and DSL (digital subscriber line) to deliver broadband Internet access. Cable was first out of the starting gate and leads by a long stretch, with one million North American household subscribers, according to Kinetic Strategies. DSL, having entered the race two years later, lags behind, with only about 159,000 subscribers (TeleChoice).

Cable might look like the hands-on favorite; but, before placing your bets, recall the outcome of the fabled race between the tortoise and the hare. What could make our tortoise catch up? Answer? Competition, which is the power pushing DSL ever faster to the finish line.

WHAT'S MAKING THE TORTOISE GO FASTER

The telecommunications industry, like the cable industry, is no stranger to monopoly. But, unlike cable, the telecommunications industry was dragged into competition three years ago with the Telecommunications Act of 1996. This important piece of legislation created the framework for competitive delivery of telecommunications services to the last mile. Although by no means a perfect piece of legislation, it spawned the birth of CLECs (competitive local exchange carriers) to compete with ILECs (incumbent local exchange carriers), which were formerly known as RBOCs (regional Bell operating companies), the local telecommunication monopolies.

DSL, as fate would have it, reached its technical viability just as the Telecommunications Act of 1996 became reality. CLECs were quick to take advantage of the opening up of competition and the availability of DSL by swiftly building their own DSL networks using unbundled pieces of telephone company networks, specifically COs (central offices) and telephone lines.

After three years of regulatory wrangling, DSL has evolved beyond its legislatively induced beginnings towards a competitively delivered broadband. ILECs continue to do their best to keep the playing field uneven, but CLECs, operating under FCC and state regulators, have become skillful opponents.

This unleashed competition is manifesting itself in all parts of the DSL ecosystem. At the transport level--high-speed DSL connectivity via telephone lines--ILECs, CLECs, and ISPs are rapidly building out their networks. On the CPE (consumer premises equipment) front, a growing horde of vendors is jumping into the DSL market. DSL CPE prices are dropping and product innovations are speeding up. For Internet connectivity, customers can choose from hundreds of ISPs offering a cornucopia of Internet services, and ISPs, in turn, can choose among many DSL transport providers.

THE HARE FACES NEW HURDLES

The cable industry escaped the open-access impact of the Telecommunications Act. Unimpeded by the regulatory complexity of opening up their networks to competition, cable companies continued to build their cable networks. Unlike the delivery of DSL Internet access, cable service is a closed system. Cable companies control the entire broadband ecosystem: data transport, CPE (cable modem), and Internet access service.

The hare's easy run might be coming to an end, however, as it faces a regulatory quagmire. AT&T's recent TCI and MediaOne cable play opened a hornets' nest of opposition. America Online and GTE, fighting under the "open access" banner, are waging a battle to force cable companies to open their networks to other Internet service providers. Of course, even if the network is opened for other ISPs, the cable companies would remain the sole providers of transport.

Open access forces are going after the cable industry's regulatory Achilles' heel in their efforts to use the cable network. Unlike telecommunications, which is regulated at the federal and state level, cable service operates as franchises in 30,000 local communities across the country. In a recent court ruling, a federal judge decreed that the city of Portland, Ore., could demand that TCI allow unaffiliated ISPs to offer Internet access over its cable network within Portland's jurisdiction. The cable industry is facing a Pandora's box of 30,000 local regulators dictating Internet access competition terms. The impact of cable companies facing community-by-community open access battles will certainly slow down future cable service deployments.

THE TORTOISE IS GAINING

The chain reaction of competition is setting off an explosion of DSL deployment and subscribers. Aggressive competition between ILECs and CLECs combined with ILEC fears of cable's inroads into the consumer market are behind a massive, accelerated DSL network build out. By the end of 1999, 35 to 40 million homes will be passed by cable modem service, predicts Kinetic Strategies. But DSL deployment will be nipping at cable's dominance, passing 24 to 37 million homes and businesses.

As impressive as the DSL build out has been, only between 2,000 and 2,500 COs out of 22,000 will be DSL-ready by the end of 1999. As the competition from overlapping networks in large metropolitan markets intensifies, DSL deployments will extend into second- and third-tier metropolitan areas, passing millions more businesses and homes.