France telecom moves into SDSL market: Alternative carriers herald SHDSL as the way forward, but the incumbent's new offering may undercut its leased-line revenues - News Analysis: SHDSL

CommunicationsWeek International, Feb 4, 2002 by Joanne Taaffe

This quarter, France Telecom will start introducing SDSL equipment into its networks, a synchronous digital subscriber line offering based on the emerging G. SHDSL standard. Once commercially available in the middle of 2002, SHDSL will undercut the cost of the operator's current leased line service. Although similar technologies have been used to provision private circuits in the past, the move sparks the first significant commitment by the French incumbent to offer DSL openly in competition with some of its own leased line products.

"The benefits for the enterprise are more bandwidth at better prices," said Jean-Yves Gouiff'es, director of networks at France Telecom. "For the same price as a 64-kilobit-per second-leased line, you have 128k guaranteed on SHDSL."

Despite enthusiasm from competitive operators, there is still relatively little SDSL deployment in Europe, notes Tim Johnson of Ovum in London. Germany, which has had an alternative SDSL market for over two years, is an exception, and not all service providers offering SDSL have been successful.

As a result, pan-European competitive carriers currently struggle to secure wholesale SHDSL, "One of our internal mandates is to get the PTTs around Europe to deploy SDSL," explained Ann LaFrance, chief international counsel for WorldCom in Brussels. "For our types of customers, this is the kind of DSL product they really need."

One of the principal reasons for the slow rollout of SDSL services is the current downturn in the telecoms market. Incumbents keen to avoid cannibalizing leased lines can point to a lack of demand from competitive entrants--strapped for cash or going out of business--as a reason for not offering wholesale SDSL. "The incumbents can say there is not much demand and go to sleep on it," said Ovum's Johnson.

Despite concerns that SDSL will eat into revenues from El leased lines, there are economic arguments for incumbents adopting SHDSL. Replacing El technology, which dates from the 1960s, with SHDSL equipment can result in considerable reductions to networking costs. Whereas an El line costs on average [euro]1600 to activate and [euro]750 to maintain, an SHDSL line costs on average [euro]1000 to activate and [euro]400 to maintain, according to Jeremy Bennington, business development manager, EMEA, Symmetricom.

France Telecom will provide a wholesale offering to competitive carriers in the middle of this year. Tom Marten, regulatory director of WorldCom France, points out that SDSL notes that although SDSL has been promised for this summer, "people miss deadlines," Despite these and other reservations, including the need to test the new SDSL product to ensure it provides the same quality of service. WorldCom France is optimistic about the long-term future of SDSL "It's the technology of the future. I don't know Wit's at the end of this year or next, but it will eventually...replace leased lines," said Marten.

Like France Telecom, Worldcom sees SDSL as a cheaper alternative to leased line offerings. "SDSL is effectively interchangeable with 2Mbps leased lines, [which are] very highly priced and poorly provisioned," said LaFrance. And France Telecom is not alone among Europe's incumbent operators in planning to offer SDSL as a leased-line alternative to medium-sized enterprises. Belgacom has taken the same decision, said Kris Vervaet, director marketing and product management, corporate and data solutions, Belgacom.

BT not budging yet

Elsewhere, alternative operators are questioning incumbents' commitment to roll out SDSL. After technical trials, BT Wholesale said it is not ready to offer SDSL service--the carrier will continue testing the technology through the latter half of 2002 and will not have commercial wholesale services of SDSL before 2003. "Some of our customers are keen for us to proceed further with SDSL, but we have to go out with the right kind of product," said Rebecca Webster, head of broadband marketing, BT Wholesale, of Felixstowe, England. BT claims that low demand for wholesale ADSL has made it wary of sinking money into building out an SDSL offer. "We don't want a repeat of that situation," said Webster

Meanwhile, operators in the U.K. are pushing ahead with plans for SDSL deployment that would bypass BT Wholesale's offering. Energis has asked Oftel for the right to interconnect SDSL networking equipment directly with BT's ATM network. Oftel is due to take a decision in coming weeks.

SDSL and ADSL compared

                    SDSL          ADSL

Transmission style  Symmetric     Asymmetric
Transmission        2.048 Mbps    Up to 8 Mbps
rate                In both       downstream
                    directions    and up to
                                  640 Kbps
                                  upstream
Direct Voice        No            Yes
Channel
Maximum             32            10
VGEs
Distance            up to 3.5 km  up to 5.5 km

VGE: Voice Grade Equivalent (64 Kbps)

Source: Morgan Stanley Research