A recent U.S. appeals court ruling has underscored how rival broadband technologies and a weak infrastructure are causing the rollout of DSL services in the United States to lag behind much of the rest of the world.
Challenging the legality of the Federal Communications Commission's Line Sharing Act of 1999, a U.S. Court of Appeals for the District of Columbia found late last month that the FCC failed to fully consider the competitive nature of the U.S. DSL market before reaching its decision. Judge Stephen Williams ordered the FCC to revise the statute, which mandates that entrenched broadband service providers share their lines with an emerging class of DSL carrier.
The court challenged the act on the grounds that in setting guidelines for subscriber prices, the FCC did not take into account the fact that costs in the United States vary widely from region to region. The court also found that the FCC did not consider the competitive threat that cable carriers posed to DSL service providers.
Citing the latest data available from the FCC, Judge Williams observed that there were 2.7 million DSL subscribers in the United States as of June 2001, compared with 5.2 million cable modem subscribers.
Indeed, as it argues its case in court, the U.S. DSL industry is falling behind not only the cable modem market but also DSL providers in Europe and Asia. Despite a 10-year head start, the United States is projected to have only 13.9 million DSL subscribers in 2005, compared with 15.2 million in Western Europe and 29.4 million in Asia, according to Allied Business Intelligence Inc., Oyster Bay, N.Y.
"Competition from cable has impeded DSL's rollout," said Navin Sabharwal, an Allied Business analyst. "Cable operators have been much more aggressive promoting cable modem services than [incumbent carriers] have done with DSL service and the gap is not closing."
Short on reach
About 40% of the U.S. population still does not have the ability to receive DSL service due to reach problems between the central office and the customer, Sabharwal said.
"The [incumbent carriers] have slowed their infrastructure improvements and new DSL central office deployments dramatically with the telecom downturn," he said. "Instead, they are focused on increasing penetration in areas where the central offices already have" a sound infrastructure.
Component suppliers, in addition to reducing costs and integrating more features per chipset, will have to solve the reach problem in the United States, where population density tends to be lower than in Europe or Asia.
"There's a need for more bandwidth and higher reach and expanded coverage, which is not available today in the U.S.," said Patrick Vankwikelberge, director of strategic business development at Alcatel USA Microelectronics in Dallas, which STMicroelectronics will acquire later this month. "Today a reach of 18,000 feet [between the central office and customer] is worse than a V.90 analog modem data rate. We want to [offer chipsets that enable the industry to] reach 18,000 feet at current price levels or lower."
But even as chipset vendors offer longer reach and faster speeds, the existing U.S. infrastructure will continue to pose challenges, according to Armando Geday, chief executive of GlobespanVirata Inc. in Red Bank, N.J.
"The DSL loops and phone wires are not always the best quality because they were installed a lot earlier compared to Asia and Europe," Geday said. "Today you're often stuck with older technologies on the central office side and newer [devices] on the consumer side that can't take advantage of the new developments."
As U.S. DSL equipment sales and subscriber rates continue to suffer, the technology appears to be well suited for Europe and particularly for Asia, where cable modem service has failed to make significant inroads, analysts said.
"DSL is the choice of broadband in Asia and Western Europe simply because the cable networks there are not that extensive and thus the potential market for cable modem services is considerably smaller," Allied Business' Sabharwal said. "The Nordic countries embraced DSL early on, but only in the last 18 months have we seen any significant ramp in other European countries, notably Germany."
Asian telcos have been aggressively deploying DSL primarily because of government pressure and a belief that high DSL penetration will translate into better technological competitiveness on a global scale, Sabharwal noted. "The most aggressive have been Korea, Singapore, and Hong Kong," he said. "In the last 12 months, Japan has also been catching up and is seeing aggressive DSL subscriber growth rates."
Meanwhile, the DSL equipment industry is likely to see increasing price pressure on a worldwide basis as the United States continues to sort out its regulatory issues. Low-cost versions of the technology such as ADSL are "becoming mature and the technological issues aren't that significant anymore for the IC suppliers and OEMs," Sabharwal said.
"That's part of the reason we're seeing signs of commoditization occur-declines in pricing, declining gross margins, and low barriers to market entry," he added.