Data CLECs Court Resellers

Posted: 08/1999

Data CLECs Court Resellers
By Peter Lambert

Leading D-CLECs see themselves entirely as wholesalers, and they are rolling out the welcome mat for all manner of channel partners.

In 1999, "broadband" is a term that has begun to fall from the lips of even average consumers, thanks to a flurry of $100 billion long distance carrier buyouts of wireline and wireless local cable operations, not to mention similarly urgent investing, partnering and positioning among the world's largest Internet content portals, software providers, satellite carriers and regional Bell operating companies (RBOCs). All of this activity is aimed at assuring a place at the broadband table, where customer bandwidth and multimedia revenues promise to be plentiful.

In the midst of these efforts by high-profile companies such as AT&T Corp.; America Online Inc., Dulles, Va.; and Microsoft Corp., Redmond, Wash., over the past 12 months, broadband wholesale opportunities also have emerged, thanks to a handful of well-funded, but lesser-known, competitive local exchange carrier (CLEC) startups that are building their own high-capacity, last-mile, digital subscriber line (DSL) networks.

Image: DSL: How It Works

They are networks with emerging national reach and an equal claim to broadband capacity that can outrun the fastest dial-up Internet speeds 100-fold and match--even quadruple--the speeds of standard 1.5-megabits-per-second (mbps) T1 business connections.

A wholesale model for marketing this DSL transport already is in practice. In dozens of markets across North America, data CLECs (D-CLECs), also known as packet CLECs (P-CLECs), are equipping telephone central office (CO) collocation sites with DSL equipment. The D-CLECs then sell this broadband transport to Internet service providers (ISPs), other CLECs and other retailers.

Leading the charge among a growing number of D-CLECs are Covad Communications Co., Santa Clara, Calif.; NorthPoint Communications Inc., San Francisco; and Rhythms NetConnections Inc., Englewood, Colo. Other D-CLEC startups are on the march, including Network Plus Inc., Quincy, Mass., which, interestingly, is reselling NorthPoint's services in off-net territories.

These carriers are wholesaling DSL transport primarily to ISPs that then bundle the high-speed access transport with their e-mail, World Wide Web access, website hosting, Internet protocol (IP) virtual private networks (VPNs) and other Internet services.

Further, major interexchange carriers (IXCs), including MCI WorldCom Inc. and Sprint Corp., are building DSL COs and are preparing to operate as local and national DSL-based D-CLECs themselves in markets across North America. Alternatively, to add DSL to their own last-mile access reach and capabilities, IXCs such as ICG Communications Inc., Denver, and Intermedia Communications Inc., Tampa, Fla., are partnering with the D-CLECs. For example, in late April, Intermedia entered strategic alliances with both NorthPoint and Rhythms, which Intermedia estimates together will have an addressable market of more than 20 million DSL lines, or nearly 80 percent of the DSL opportunity when combined with Intermedia's own DSL deployments.

In the face of heavy broadband infrastructure spending by incumbent cable operators (which now claim more than 700,000 cable modem subscribers) and RBOCs, the D-CLECs believe they can continue to grow by primarily targeting small-to-medium-sized business users. In contrast, consumers rather than businesses comprise the primary target of multibillion-dollar investments in residential broadband networks by the cable operators and RBOCs.

"We see a lot of those small and medium-sized business customers increasingly wanting to go to one source for bundled telephony and data services, so the telecommunications resellers intrigue us because of their established relations with those customers," says Jeff Thompson, director of channel marketing for NorthPoint Communications, which intends to grow its 17-city DSL network to 28 U.S. markets by year's end. "We want to leverage existing channels in the telecommunications space, particularly channels that have relationships in the small and medium-sized business segment," Thompson adds.

According to Boston-based industry analyst TeleChoice Inc., the total deployment of U.S. DSL lines had reached only 39,000 by the end of 1998. However, thanks to aggressive D-CLECs and the beginning of mass-market deployments by the RBOCs expected in the second half of 1999, TeleChoice projects that number will reach 248,000 this year, 904,000 in 2000, 1.68 million in 2001 and 2.35 million in 2002. TeleChoice estimates that, even in the long run, the CLECs will retain a 10 percent to 20 percent share of the overall DSL market because of their focus on underserved small businesses.

Balancing Act

Standing as a potential aid to reaching that projected growth, accelerated DSL technology innovation has created a wide range of DSL flavors and capabilities over the past year, paving the way for flexible systems that can be tailored to specific customer needs and limitations.

So far, the RBOCs have invested in asymmetric DSL (ADSL), which is designed to deliver big multimedia files over a lot of bandwidth downstream into homes, and only a little bandwidth upstream to transmit simple PC keystrokes, such as a mouse- click request to see a next e-mail or web page. Three years ago, Hoffman Estates, Ill.-based Ameritech Inc., Atlanta-based BellSouth Corp. and San Antonio-based SBC Communications Inc. jointly purchased ADSL equipment from Plano, Texas-based manufacturer Alcatel USA to launch mass-market broadband services to consumers. This gear is designed to deliver 1.5mbps to 6mbps capacity downstream and 128 kilobits per second (kbps) to 256kbps upstream and is being deployed by all the RBOCs this year.

Such asymmetric, or unbalanced, speeds are seen by most industry insiders as inappropriate for business users, who often must send, as well as receive, data at high speeds, whether for inventory file transfers, hosting their own web-commerce sites or other business applications.

Consequently, D-CLECs have adopted symmetric DSL (SDSL) technologies, which deliver equal capacity in both directions, ranging from 128kbps to multimegabit speeds. Symmetric technology flavors include SDSL, high-speed DSL (HDSL-1 and HDSL-2) and isochronous DSL (IDSL).

The RBOCs themselves actually use four-wire HDSL-1 to provision standard T1 lines, which they then sell to CLECs or businesses for upwards of $1,000 per month. As an alternative, the D-CLECs are purchasing unbundled copper loops for about $22 per month, then supplying their own DSL equipment, typically SDSL, which requires only two wires to deliver 384kbps to 1.5mbps in each direction. Also requiring only two wires (that is, one twisted pair copper loop), HDSL-2 products due out this summer promise to increase the efficiency of SDSL greatly. Finally, IDSL offers lower data rates but at considerably longer distances than other flavors can reach.

In the dynamic bandwidth realm, rate-adaptive DSL (RADSL) and multirate DSL (MDSL) products capable of adjusting upstream and downstream data rates according to each customer's needs and distance limitations have begun appearing on the market.

Virtually all DSL CO equipment makers are building modular DSL access multiplexers (DSLAMs), which accommodate interface line cards for all those flavors. That way, if a DSL carrier serves most of its customers with SDSL, for example, it also can deploy IDSL or MDSL line cards for additional customers that can't be reached by SDSL.

For all these technologies, a raft of DSL customer premises equipment (CPE) makers have begun to deliver business-friendly CPE that integrates DSL modems with routers for local area network (LAN) access and even voice channel banks for up to 16 voice lines sharing DSL line capacity dynamically with data traffic, all increasingly optimized for automated configuration for the internetworking-illiterate customer.

Welcome Mat

So far, the leading D-CLECs see themselves entirely as wholesalers, and they are rolling out the welcome mat for all manner of channel partners. "We started out as a wholesaler, and we still have no plans for direct sales to small and medium-sized businesses," says NorthPoint's Thompson.

Instead, NorthPoint has pulled together resale partnerships with more than 100 ISPs, which, for NorthPoint, represent the "lowest-hanging, obvious fruit" because of their existing dominance of the small and medium-sized data-services market segment. "For them, the gap has been between affordable but slow dial-up access and very expensive T1 access, so we fill that gap for them with high-speed access and a reasonable cost," Thompson says.

Indeed, competition among even the few early D-CLECs already has driven DSL transport prices to as inexpensive as $125 per month. In most markets, NorthPoint starts by packaging that transport with Internet services from a combination of ISP partners, including national ISPs such as Concentric Network Corp., Cupertino, Calif., and more locally based ISPs.

However, Thompson says, "a lot of small businesses want to work with smaller ISPs, integrators and resellers, so we can't depend only on our large, national partners." Consequently, NorthPoint wants to broker relationships between those ISPs and all other players in each market that seek to target small and medium-sized businesses. Based on the belief that each new channel promises expanded penetration of DSL, the carrier has begun hiring trainers and is establishing channel programs and reseller training tools for ISPs, traditional voice-service CLECs, business system integrators, information technology (IT) consultants and telecommunications resellers. "A reseller will have to assure that his people have some substantial knowledge of data and the Internet for credibility with customers," and NorthPoint will help resellers firm up that knowledge, Thompson says.

A reseller's expertise and skill-set requirements, as well as margins, will vary according to how far up in the value chain the reseller wants to play. "For telecom resellers, the easiest target might be pure high-speed Internet access, where there's not that much to the technology, which is becoming more plug-and-play," Thompson says. "We can set them up as agents for our ISP partners, as a more effective seller than telemarketers," upon which ISPs tend to rely heavily.

If a telecom reseller's current customer base is demanding business services beyond Internet access, such as remote access VPNs or IP telephony, "we can hook them up with other types of value-added resellers and/or look to develop a way for them to enter a facilities role," he says. "There's really no one owning that space yet for small and medium businesses, and we think we'll see a lot of activity on that front in the next six to 12 months."

One of NorthPoint's customers, Network Plus, agrees. Network Plus is rolling out its own wholesale DSL service to its resellers in areas where it has network--the Northeast and, soon, the Southeast--and using NorthPoint's network in other parts of the country. In July the company had planned on extending the offer to its agents.

DSL may stand as both the most promising broadband multimedia platform for underserved businesses and as the most promising virgin territory for telephony agents seeking a range of new value-added services to sell.

Peter Lambert is features editor for PHONE+ magazine.

The Need for Speed
By Liz Montalbano

Pundits agree digital subscriber line (DSL) is the one of the hottest services currently driving the market, and service providers are scrambling to see how they can fit it into their product package. But what's the use of providing DSL if your customers aren't qualified for it?

Enter Sapphyre Loop Qualification Service, a new product from Telcordia Technologies Inc., Morristown, N.J.

"One of the challenges facing service providers that are offering DSL service is the whole issue of loop qualification," says Bobbi Rentko, director, Sapphyre loop qualification solution. "Can a customer get DSL service? If they can get it, how are they served? And if they can get served, what bit rate can they get served at? Sapphyre answers all of those questions."

Sapphyre is available either from Telcordia's website or from a CD-ROM that is mailed to a potential DSL customer. The application runs through a regular analog modem over the existing plain old telephone service (POTS) line.

Once the modem dials into Telcordia's server in Morristown, what Rentko calls a "handshake" is exchanged between the end-user line and the Telcordia server. The server applies a Telcordia-developed algorithm that determines if a customer can get DSL, how it can be provided and at what bit rate. Then the information is sent back to the DSL service provider, and from it that provider can assess how best to serve the customer.

"It's not just a technical tool, it's a marketing tool," Rentko says. "The service provider can use [the answers] as marketing information on how to target the customer. And this will help with the mass-market march of DSL."

DSL Discount Debate Deepens
By Kim Sunderland

New York-based Bell Atlantic Corp.'s bulk discounts for digital subscriber line (DSL) service give telecom resellers another reason to worry they're being trampled in the race to provide high-speed access to the Internet.

"This is a real crucial issue for us," explains David Gusky, executive vice president of the Telecommunications Resellers Association (TRA) in Washington. "Broadband services are the plain old telephone service (POTS) of the future, and it will be difficult for our members to compete if they can't give access through resale or unbundled network elements (UNEs)."

The Federal Communications Commission (FCC) in June approved Bell Atlantic's tariff (Transmittal No. 1138) offering volume discounts for DSL service. But in a victory for TRA members, the FCC did suspend until October tariff language specifying that Bell Atlantic's bulk DSL service is a wholesale service. The wholesale designation is important because, under Section 251(c)(4) of the Telecommunications Act of 1996, a retail service being sold by a nontelecom carrier must be offered to competitors at wholesale rates. This is an additional interconnection obligation the Telecom Act sets on incumbent local exchange carriers (ILECs).

TRA and Bell Atlantic specifically are arguing over the word "retail." TRA says Bell Atlantic's DSL services "are indeed" being provided at retail to Internet service providers (ISPs), which bundle the service as part of a package and then sell it to large corporate or institutional customers. Bell Atlantic, which claims it's just trying to give customers high-speed Internet access faster, says it's selling DSL services at wholesale rates to ISPs.

It sounds more confusing than it actually is, according to Susanne Guyer, executive director of federal regulatory for Bell Atlantic. "Resellers simply want to apply further discounts," she explains. "We contend our DSL service is not sold at retail, therefore, it's not subject to more wholesale discounts."

"That's simply not the case," Gusky counters. Bell Atlantic's DSL tariff for ISPs is a retail transaction, he explains, because ISPs aren't reselling the service, they're acquiring it "to create a different service."

The FCC currently is investigating this issue further as part of its advanced services proceeding.