The Ovum View: DSL is taking off - but where's it going?

Price reductions in broadband access, particularly for DSL services, are a welcome, if overdue, development. But as Mark Main, senior analyst at Ovum, argues there is scope to do so much more with broadband DSL services, particularly for the incumbent players.

After a poor start, the roll out of ADSL services in Europe is now racing ahead and, in some countries, installation rates have accelerated markedly. Penetration rates still vary around a few per cent of the population but the change in the last six months has been dramatic. While very recent numbers have not been released, BT, for example, has probably installed as many lines (retail and wholesale) in the first few months of 2002 as it did in the whole of 2001.

This is all good news and is partly the result of falling prices in many European countries, due to increased efficiency internal order handling, the introduction of self-install and lower systems costs. For some time, broadband cable services have often been priced below similar ADSL services, which has impacted positively on take-up levels.

Cable operators should view the incumbent telco's move on pricing as a wake-up call about which they can't afford to be complacent. Some operators are already starting to respond. For example, NTL has added a new 1Mbps consumer offering alongside its half-megabit service.

An interesting development is BT's recently announced 'BT Broadband' that basically amounts to an IP-'dialtone' service. But broadband service differentiation should be about more than headline speed, lower prices and cut-down offerings. To survive into the long term, the incumbent access providers need to gear-up in a big way for the brave new world of broadband.
In Ovum's view, DSL is one of their most important stepping stones to future revenues. They must start looking well beyond voice services, plain internet access and the old telecoms business models. Broadband is about bringing the right partnerships and people together to enable new services, and delivering new content and applications - based on quality in the network.

Competitive DSL access providers, particularly those providing unbundled local loop services, have a small market share compared to the incumbents. The fittest and most focused of these are surviving the telecoms downturn and will see a revival in fortunes into the medium term. They will continue to target more specific opportunities and try to remain at least one move ahead of the incumbents. If incumbents do nothing now, they will be left with dull, limited-capability offerings when business broadband really takes off in a year or so.

The cable operators, with their debt problems behind them, will regain momentum aided by further consolidation. Their bundled services will certainly provide the stiffest broadband competition in the consumer market.

Apart from price, the lack of compelling content is the biggest impediment to consumer broadband, particularly in the areas of streamed audio/video and TV content for both broadcast and on-demand services. There isn't much to excite the customer, aside from a handful of service providers bravely rolling out TV over DSL service, and a few broadband portals offering limited content.

Telcos don't have to move headlong into content production or delivery but they will need to do more by way of partnerships, to make access to high quality content easier. There are content rights management issues to be resolved but the consumer doesn't want to hear the excuses, they want the services. They've been told repeatedly that broadband is all about easier and better access to content, so they want to get on with it.

The 'triple-play' - a package of telephony, internet and TV services provided by many cable companies - will be the way forward for some incumbents because it creates both new opportunities and business benefits. The incumbents need to start moving, immediately, to work out how to make it succeed in their own markets. And they don't need to wait for the higher speed VDSL either. In many cases ADSL is very capable of delivering video and telephony.

However, all this means nothing if the broadband networks are not up to scratch. While much greater speed helps, it must be backed by service level agreements (SLAs). Today's DSL broadband networks are virtually all 'best-effort' and contended. This is fine for email and casual web browsing but not much good for premium content.

The broadband services of tomorrow, whether consumer entertainment or business private networking, need quality of service assurances that simply aren't available. The whole development of new packages by service providers absolutely depends on support in the network for end-end service levels. Now is the right time to start implementing SLA support.

Finally, incumbent access providers are shying away from offering symmetric services to small and medium sized businesses using SHDSL. They are apparently scared of the potential damage to higher margin services such as ISDN, leased (private) lines and virtual private networks (VPNs). However, they must understand that within two years or sooner, numerous alternative access providers are going to step in and do it anyway - either through local loop unbundling or through an alternative access solution such as broadband wireless. This has started in Germany already and there are similar moves in the UK.

It is better for the incumbents to start managing the inevitable migration of services to next-generation platforms - and learn about providing and managing SLAs in the process - than to pretend that it isn't going to happen.

Yes, broadband is a risky venture and there is plenty of work to be done in terms of developing new businesses, exploiting new technology and enabling the delivery of content and applications. However, the incumbents have little choice but to broaden their horizons.

For further information see Ovum's advisory service: Access@Ovum and the Ovum report DSL: Strategies for Next-generation Services. Or email: info@ovum.com and visit www.ovum.com