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The September 23, 2003 Issue Provided by System Dynamics Inc.
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Broadband World Forum -- It Takes More Than Bandwidth

The Broadband World Forum which we attended earlier this month is heavily weighted toward its history as the "DSL World Forum". Since DSL is much stronger than cable nearly everywhere but North America, it's understandable that many people view DSL and broadband as synonymous.

At the event, the DSL Forum in conjunction with Point Topic released its latest figures on DSL subscribers worldwide: "As of 30 June 2003 the total is 46.7 million. Western Europe showed the greatest six-month growth with 12.8 million homes and businesses are now using broadband DSL. The Asia-Pacific region has the greatest number, at 17.8 million subscribers. The DSL Forum has set a target for a global mass market for broadband DSL – 20% of all phone lines – 200m subscribers by the end of 2005. South Korea remains the only country in the world to have achieved mass market status with 29.7% of its phone lines delivering DSL services."

Despite their historical DSL focus, we applaud the IEC conference organizers for their inclusion of other perspectives on broadband, including those from cable operators, fixed wireless providers and fiber-based service providers.

Conflicting Messages?

Before telling you what we heard, we'd like to note that we've read reports by some of our colleagues about the conference. Doing so made us understand more than ever that "things are in the eye of the beholder". For example, Dave Burstein wrote in his September 18th DSL Prime report about his "wonderful conclusions" that: "Speeds delivered to customers can easy double"; "Operating costs can be cut in half"; "Growth will be explosive"; "Deployment is 90% solved" and that "Jong-Lok Yoon of KT inspired me with their accomplishments, Ben Verwaayen of BT with their plans, and John Cioffi of Stanford with the possibilities he's opened up."

Although we heard some of the same talks, the strongest message we came away with was that most providers are still struggling with how to move beyond selling faster speeds and into applications that captivate consumers and drive profitability. Just moving to faster speeds is far from enough and unless revenues can more than cover the costs of the upgrades, the pursuit of more bandwidth may be a trap.

One version of this message came from Martin Harriman, Chief Marketing Officer of Marconi. Referring to today's "all you can eat" bandwidth model, he asked "How can we constrain the genie we let out of the bottle?" We repeatedly heard about service providers' quest for how to deliver services beyond connectivity and Internet access and bill for them on some usage or value-added basis. The quest for ARPU and how to mine the value of bandwidth seemed nearly universal.

Making Money from Megabytes

Many sessions included talks on how service providers are working to mine the value of bandwidth (and QoS and more) and collect additional revenues. Here are some of the ideas we heard:

  • Tiered services
  • Lower latency and higher speeds bundled into online gaming services
  • Providing value added services such as music subscription or digital photography
  • Providing video on demand, to both the PC and the TV
  • Offering hotspot access in addition to home broadband access
  • More generalized fixed/mobile broadband convergence (not just from hotspots)
  • Personal Web storage
  • Virus protection services
  • Filtering services against adult content/parental controls
  • Providing telephony bundles as an option (like those from Free Telecom discussed below)
  • Providing additional bandwidth on demand either as pure bandwidth or in conjunction with specific applications
  • Providing a fixed IP address
  • VPN services
  • Offering video communications
  • Offering and supporting home networking

Watching KT and their broadband leadership in Korea (where 70% of homes have broadband) may provide some clues to how various new services are succeeding, but we believe the real message from them was not to copy their offerings (some of which may be unique to their culture) but to emulate their devotion to listening to their customers. The service that struck us as their most unusual was "protecting against Internet addiction" for which they charge $3 additional per month. In Korea it appears that Internet addiction is serious enough that there have been multiple organizations formed to cope with its risks.

The KT service, Megapass Timecodi, monitors the hours a child (or other person) consumes on the Internet. The time limit is set either by the user themselves or by parents or others helping the user control their behavior. When the specified duration has elapsed, the user is notified and redirected to the service page. We don't know how this would fly in other countries, but think it's a lovely business proposition to get customers to pay more each month to limit the amount of service they can use!

Home Networking

TI's display at BWF --> Click for larger pictureThe Forum held several sessions related to home networking. Sandy spoke in one called "Broadband Home Network Architectures: The Digital Home", chaired by Nancy Goguen of TI. Both Nancy's talk and that of her colleague Joe Crupi touched upon consumer's lifestyle needs for entertainment, productivity, home automation and connectivity. Nancy spoke about how the quest to understand user applications is key to profitability for broadband service providers. She also focused on how "residential gateways" are evolving to fit these needs and applications. On the exhibit floor, TI displayed some of the components which form the foundation for such gateways (see picture).

Sandy's talk "The Broadband Home: It’s Hard to Make It Easy" came from two perspectives: one as a consultant to broadband companies, the other as an intensive broadband user who lives in a very networked home. Part of the message is that today's home generally consists of numerous technology "islands" (TV, PC and computer networking, phone, lighting, HVAC, audio, photography, and more) with lots of legacy equipment as well as new digital devices. There are multiple efforts underway to bridge these. Her caution was that service providers should try to solve manageable pieces. One of the lessons learned from "advanced set-top boxes" in the cable industry was that attempts to put too many functions in a single centralized unit inevitably failed due to Moore's law. She indicated her belief that this lesson is equally applicable to trying to integrate too many functions into centralized residential gateways. Leveraging the efforts of the PC and CE industries and learning from/cooperating with other industry efforts are both important.

Ofer Vilenski, CEO of Jungo Software focused on intelligent software as the answer to simplifying ("zero configuration") home networking. He spelled out some of the technical challenges and Jungo's progress in overcoming them. Jungo's OpenRG residential gateway software is currently integrated into access devices from vendors such as Toshiba and U.S. Robotics. We have met with Ofer and Jungo previously and are impressed with their progress. We agreed to trial one of Jungo's gateways and see which system administrator headaches it cures for us.

Jay Fausch of Alcatel concluded the session by focusing on the contributions that must come from the network equipment. As Chair of the Marketing Committee of the DSL Forum, he also mentioned the work this group is doing on their DSL Home Initiative.

How's Competition Doing?

There was a fine line-up of speakers from incumbent telecom companies at the conference, including BT, France Telecom, Deutsche Telecom, Korea Telecom, Telefónica de España and Telecom Italia. However, since we're strong believers in the power of competition to spur innovation and better value for consumers, we'll focus more on what we heard from some of the insurgents.

As residents of the US, where cable operators and telephone companies fight head-to-head for broadband customers, we have noticed the lack of a strong alternative to the incumbent telephone providers in Europe. The financial woes of many European cable operators cast some doubt about having the resources to wage a strong battle against the former PTTs. The UK's Telewest and ntl had an early start and together have about the same number of broadband (cable) subscribers as BT's (ADSL) subscribers. But with BT having gotten really serious about broadband in the past year, and its much greater population coverage, the MSOs have a tough battle ahead. More about Telewest and BT below.

Voice over DSL

In a session on deploying voice in an unbundled local loop, we heard from three competitive providers. All said they were EBITDA positive, despite difficulties with the incumbent and regulatory matters.

Ike Knuivers represented Versatel, which started as a reseller of voice minutes in 1995. Versatel began building their own network in 1997 and now has over 1 million customers in Belgium, Germany and the Netherlands; it is the largest alternative provider of DSL-based services in The Netherlands. Although their initial focus was the small and medium enterprise customer, they have now captured 10% of the consumer data market in the Netherlands. Their Zon Broadband Budget service, which provides 256/64 Kbps, costs just € 14.95 per month. They have a range of tiered residential offerings which go up to 2048/320 Kbps for € 83,87. They have now moved into voice because they see more money there than in Internet services. Their initial voice over DSL service is ATM-based.

Serge Lupas, from Cybercity in Denmark, explained that they have not yet moved into voice, although they are examining the how, what and when of VoIP. Cybercity is the number two ISP and DSL provider in Denmark, after the incumbent TDC. They have distinguished themselves from the incumbent by such features as boostable bandwidth on demand for their users. They have also focused on providing services to businesses that want to enable their employees to work at home.

Free Telecom's COO Michael Boukobza --> Click for larger pictureThe third competitive provider was Free Telecom, represented by their COO, Michael Boukobza, whom we also had the opportunity to meet with privately. Free, a subsidiary of the iliad group and founded in April 1999, is second in French ISP market share behind the incumbent service, Wanadoo. As covered in last month's broadband Home Report, Free recently introduced free VoIP phone calls to all their DSL subscribers until the end of 2003. Free had already been differentiating themselves from their competitors by giving 2 megabit service and a fixed IP address. Adding voice is at the heart of their expansion strategy and has been facilitated by capabilities already in the "freebox" which comes with their high speed data service.

Cirpack's CTO, Frederic Potter, moderated the session featuring these three competitive players, and we took the opportunity to meet with him. Cirpack got our attention after Free Telecom selected their voice switching equipment. Potter told us that Cirpack's equipment is deployed in 15 service providers, usually alternative carriers; he said their systems serve over 1 billion minutes per month and exceed 5 nines availability. The company has been cash flow positive for 2 years. Their credentials seem quite positive and we give them credit for being the "David" against such "Goliath" competitors as Marconi, Siemens and Ericsson.

Fastweb Update

In another session and follow-up conversation with Mario Mella, Network Planning Director of Italy's Fastweb, we had a chance to catch up on their latest progress. As we have previously reported, Fastweb is Italy’s main alternative fixed broadband telecom operator, deploying fiber to each building. They now pass over 90% of the buildings in Milan with their fiber. Back in July, they signed an agreement with Telecom Italia to sell their Hamburg, Germany broadband telecommunications provider HanseNet for over € 250 million, and are using the proceeds to concentrate on the expansion of FastWeb in Italy.

Since they are active in six Italian cities, a substantial portion of their customers (45%) are being served via DSL connections awaiting fiber installation. Their most recent announcement was to make accessible to these DSL-served clients all the television services already available to their fiber customers. Their ADSL connection speed is up to 4 Mbps downstream (up to 512 Kbps upstream). Their TV services to DSL clients are provided by multicast over DSL and include 120 channels. This newly launched service is an example of Fastweb pioneering the use of a new technology (which is being supplied by Marconi).

Emerging DSL Technologies

We attended a great session on recent advances in DSL technologies, and came away with mixed feelings. On the one hand, it's impressive how much bandwidth these technologies promise to extract from copper wires designed for analog voice. On the other hand, DSL standards seem to be multiplying faster than phone companies can deploy them, and it's hard to see how phone companies can choose between the rapidly-expanding choices.

The session was called Advancing DSL: Driving the Technology That Delivers the Bandwidth and included many of the leading architects of DSL standards (including John Cioffi of Stanford University, Kevin Foster of BTexact Technologies and Massimo Sorbara of GlobespanVirata). We learned about the many technologies that are following from the now-familiar ADSL deployed by many phone companies, and the many problems that arise from having different technologies within the same copper bundle going different distances from the DSLAM to the customer premises. By the time it was over, we immediately understood that "advanced shidzull" meant emerging standards for single-pair high bit-rate DSL (SHDSL), a relatively new form of symmetric DSL.

Here's some of what we learned:

  • There are multiple emerging standards--recently approved or in development--for all "flavors" of DSL: ADSL (asymmetric), SDSL (symmetric) and VDSL (very high speed and intended for video). Compared to earlier standards, these provide better "range/rate" performance, with higher speeds and longer loop lengths. Some of these use multiple lines, or can combine groups of lines, to get better range/rate performance.
  • SDSL is generally viewed as most appropriate for business customers, replacing older T1/E1 leased lines with higher-speed lines that can be configured for either traditional TDM services or for native ATM or Ethernet.
  • ADSL is most appropriate for residential customers. The newer flavors of ADSL (ADSL2 and ADSL2+) are in competition for range/rate with VDSL.
  • Running multiple DSL lines in the same bundle (typically 25 or 50 copper pairs) creates interference or "crosstalk" between them. There is additional crosstalk if the lines use different DSL technologies, and especially if a single bundle includes some pairs driven by DSLAMs at a central office and some driven from remote terminals.
  • The normal way of coping with crosstalk is to preset each line's transmit power levels based on worst-case crosstalk scenarios. But the result can be sharply reduced range/rate.
  • An emerging technique called Dynamic Spectrum Management (DSM) can markedly improve range/rate. It operates first by adjusting each added line's operation for the actual mix of technologies already in the bundle, and later by having a central controller dynamically optimize the settings for each line. See the excellent work on DSM by John Cioffi and his colleagues at Stanford University.
  • The same signals that create crosstalk between lines are also a potential source of external electromagnetic radiation. DSL operates on a physical plant designed for analog voice and based on copper pairs "installed in 1874 or 2003" (as one standards presentation put it), and it's hard to avoid external radiation when you run MHz signals. Proposed new European EMC standards may require limiting power and reducing the range/rate.

By the end of the session, we realized that none of the participants had observed that fiber could solve a lot of these problems. It can provide any speed of service anyone might want and lots of range. Fibers don't interfere with each other, and don't emit any radiation.

It's expensive to tear up existing copper, of course, and fiber certainly can't be built overnight. But we wonder how many phone companies are considering the plethora of emerging DSL choices and the complexity of spectrum and radiation management--and thinking how much simpler fiber would be.

What About Wireless?

In the conference session titled "Wireless Broadband IP Everywhere: Is it Real?" the speakers answered the question with a resounding yes. David Brunnen, Founder and Managing Director of ABFL, whose background includes many contributions at BT, gave a humorous look at headlines of the future and how broadband wireless everywhere will shape them. Other presentations by Dave James of Oak and Gilad Peleg of Alvarion would sound familiar to those who have read our recent articles about Broadband Anywhere and the role of broadband wireless services.

During the session, one of the speakers asked the question: "Does anyone (in the audience) still believe in 3G?". Of course the phrasing was a bit loaded, and no one raised their hands. The subject of 3G and its role in the wireless broadband future was one we discussed in many of our meetings. It's a contentious and complicated topic, which we'll simply mention here as one more piece of the complex broadband puzzle.

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