May 2002  

The Times They Are A-Changin'

By Stephen Lawton

In the mid-1950s, folk singer Pete Seeger wrote the song, "Where Have All The Flowers Gone?" Today, with apologies to Pete, I offer this ditty to the broadband providers throughout California:

Where has all the broadband gone? High-speed access;
Where have the providers gone? Bankruptcy court;
Where has all the broadband gone? Gone to telcos every one;
When will they ever learn? When will they ever learn?

Despite what some marketeers and sales literature says, broadband, the promise of high-speed bandwidth for all has never really been a "business." It's a product - a piece of a pie, just like every other piece of a larger pie.

Some Internet service providers never learned that basic lesson of economics: if you sell just one product at a loss in hopes of making money later on volume, someone bigger than you will sell the same thing you do for less, but make money on their other products. Sounds a lot like the problem some dot-coms faced - and why they're no longer with us.

If you're like me, you've had at least one of your broadband suppliers go out of business in the past year. I've had to change providers four times in the past three years.

First I had Flashcom - a decent provider, if not the most technically astute. The service department installed an IDSL line in my home, 144Kbps, instead of a higher-speed ADSL line, because they miscalculated the distance from my home to the central office. When Flashcom went away, I signed up with another service provider - InternetConnect. I figured this was a pretty safe bet; after all, its main source of income was providing virtual private networks and other business services, and DSL was a just a sideline.

As a backup, I also got cable modem service through @Home and my local cable service. Alas, @Home, which tried to grow by acquiring the Excite portal, failed, having never really gotten over that investment. The company, which was one of the largest cable ISP service providers, closed its doors for good in February after discontinuing services this past fall. InternetConnect also shut its doors, selling off its assets to Covad Communications in bankruptcy court in January.

Drat. That means I have to change my broadband supplier once again. In some ways, having Covad as a broadband ISP makes a lot of sense. After all, the upside to this is that the wholesaler and retailer of the broadband service is the same company. But Covad has had its own financial problems. To its credit, however, the company recently dug itself out of its own bankruptcy.

In the larger scheme of things, what does this shakeout mean? Is DSL going away? I doubt it. Will DSL continue to be offered by small ISP? Sure, there will always be the devil-may-care entrepreneur, but don't expect the service to be cheap. As DSL settles in to the telephone companies' list of services and smaller DSL providers drop like flies hitting a bug zapper, you can expect prices to rise and service to be, well, about what you'd expect from the monolithic phone company.

Judge Harold Green might have broken up AT&T in 1982, but many of the Baby Bells have merged again and the new "Baby" Bells are quite a force. When you look at the overall health of the telecommunications industry, however, what you find is a huge discontinuity with the conventional wisdom. Today, more and more people have multiple phone lines in their homes. They also have cell phones, pagers, and, yes, maybe even a fax.

The problem is, even though consumers are buying up phone lines by the gross, telecom companies are in a financial funk. Companies like Nortel Networks, WorldCom, Nextel Communications and JDS Uniphase are seeing their stock prices wallow well below $10 a share. Global Crossing, the fiber optics network company, once saw its stock price at $64.25; now it's worth nothing.

As much as I hate to admit it, the telcos now have the power to control broadband; maybe they always did. It was great to root for the little guys, the ISPs that sprouted up to sell high-speed services. Unfortunately, many are out of business today and DSL is getting a black eye as an untrustworthy technology - not for technical reasons, but for economic ones.

So, with apologies this time to Bob Dylan, I offer this final thought on the future of DSL:

Come senators, congressmen
Heed your constituents' call;
Those DSL vendors
Are starting to fall;
And your broadband access
Has rudely been stalled;
There's a telco battle
And it's ragin'.
It'll disrupt your Web access
And your Internet calls;
For the times they are a-changin'.

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