Considering that this article was published in October 2000, it is a very accurate portrayal of the state of the industry. As the author notes, the DLEC's (NorthPoint, covad, Rtyhms) had already captured a large percentage of the business market. There is a reason for this besides marketing -- The DLEC'S NorthPoint sold a different type of DSL than Verizon. NorthPoint was cutting into Verizon's lucrative T1 market, specifically into the desirable small business market. Small businesses pay the highest prices, they are charged more than residential, and don't have the clout to demand discounts that large business do.

Types of DSL and HOW they function

Verizon and the other ILEC's sell ADSL. This is an Asymmetric service providing a high (or higher) bandwidth for traffic destined towards a customer and a lower bandwidth for traffic from the customer to the internet. For residential customers this is great. If you aren't hosting, you send a blurb of traffic out and hit a website on port 80 and it streams back a page full of text and graphics or a file download. When you surf the net you want a big pipe coming towards you, and don't really care about the size going away from you.

Also, ADSL uses only 1 pair of wires to accommodate both data and a standard POTS (Plain Old Telephone Service) line. It's really simple. You can think about it like your stereo speaker system: there is a woofer for the low notes (this equates to the low frequency POTS line, including the DC voltage supplied to power the telephone set and the 20Hz ringing voltage for the bell (remember the bell -- ?) ; there is a midrange/tweeter for the higher frequencies (these are the frequencies that would go to the DSL "modem" which is a network device that is a router or a bridge.

The router or bridge translate the DSL formatted signal that comes over the phone line into an Ethernet signal that is compatible with our home computers.

Inside your speaker cabinet there is a small circuit called a "Cross-over network". The crossover takes all of the signal from the amplifier and separates the low frequencies and the high frequencies and sends the lows to the woofer and the highs to the midrange/tweeter. In an ADSL network the equivilent of the crossover network is called a "splitter" (imagine that!).

There is a splitter at the Central office that is hooked up backwards so it actually works as a combiner (it is a bi-directional device) to combine the voice and DSL on one line. Another splitter is installed at the customer location to split the voice off to the customers telephones and the higher frequencies off to the DSL router/bridge.

NorthPoint didn't sell ADSL. NorthPoint sold SDSL . SDSL is Symmetrical DSL. The bandwidth is the same in both directions.

This is service is active to businesses whose data traffic patterns are unlike residential customers. Many businesses host their own web site, have their own mail and use the network to backup or aggregate information from multiple sites after close of business.

The T1 Line and DSL

Symmetrical DSL is a direct competitor for T1 (DS1) service, which can be ordered in 64KB multiples up to 1.544 Mhz. The cost for T1 service is much higher than for DSL. However, if you order T1 service from an ILEC, what they deliver to you is a 4 wire DSL service, converted to T1 in their termination equipment on the customer premises.

A T1 signal has be repeated (regenerated) every mile. This means the cable pair from the central office to customer prem must be broken into and pairs from it extended into a secure room that contains racks full of repeaters, every mile.

That's expensive, and it's true even if a customer wants a sub-rate T1, which is a 64K multiple like: 256Kb, 512Kb, etc. SDSL is distance limited, however it can provide 256K service out past 2 miles on 1 pair, with no repeaters -- a huge savings when you consider that the quantity of pairs in outside plant finite and very expensive to add to.

Business verses Residential market

The business market is where CLEC/DLEC's focus because in the data market they are competing against T1 services from the ILEC. Monthly charges for these services can be found all over the net. Businesses do not pay $50 per month. It would be something under, but pushing $500. Port-for-port, pair-for-pair, business customers are very desirable. There isn't any money in residential service for a DLEC at $50/month. If you add local and LD voice to the same pair there is potential for profit.

Voice Over DSL

The "Holy Grail" for CLEC/DLEC'S is a multiplexer that provides multiple voice lines and data over 1 or 2 pair of DSL the same as can be done with T1. These are generally called "soft-switches" because they are comprised of a central controlling computer, and adjunct computer that manages features, another computer that interfaces with the SS-7 cloud (There is a "universal" signal system 7 network. It is a very secure, redundant, network that overlays and compliments the telephone network. All signaling between telephone switches is done over this network.

If you pick up your phone and dial a number across the country, the SS7 network queries each switch in the path between you and the far end to see if ports and trunks are available to make the call, and if the line at the far end is idle. If the line is idle and there is a path the SS7 network tells all the switches involved to put the circuit together and ring the bell at the other end. If the line is busy at the other end, the SS7 network tells your local switch to give you a busy signal.

Likewise your local switch gives you an ATB (All Trunks Busy) recording if there are no circuits available. This means that if the far end is busy, no facilities in between you and the far end are tied up while you get a busy signal --a huge benefit in large networks.) and the peripheral "switch" components that physically exist in every CO to connect to the copper pairs going to the customers.

There are several products out there but they're "not soup yet". Providing an alternate voice service means you're competing with the service provided by a telephone switch.

The most common switches out there are the Northern Telecom DMS-100 and Lucent's 5ESS. They have both been around for more than 15 yrs and have more options and capabilities sitting latent within them than anyone can imagine.

When an ILEC starts advertising a "new" feature, the work to their order entry/provisioning/billing system was done to allow them to flip a 0 to a 1 somewhere in a switch. The features have been there forever, they exist in software, it doesn't cost an ILEC a dime to turn one on.

Even if soft-switches do evolve, the CLEC is still dependant on the ILEC for CO (central office) space and the copper wire in the last mile. This availability only exists on a 3yr term. The competitive environment is analyzed every 3 years and one of these days the switch could get thrown and the could tell the CLEC'S to build their own CO's and cable plant.

When the author Gail Lawyer says:

Of all the BOCs, SBC might feel the most pressure as a result of the NorthPoint-Verizon combination

"The deal will motivate SBC to move more quickly out of region," says Smith. SBC has already committed $6 billion to roll out DSL in its service territory and is introducing a variety of competitive local telecom services in 30 cities out of region as a result of its merger with Ameritech

He's talking about "Project Pronto". Now that competition is gone, SBC has cut way back on their "to make high speed networking available to 80% of their customers":

^[1]"SBC Communications said it is slashing capital spending in 2002 by 20 percent, with most of the cuts in its ''Project Pronto'' effort to bring DSL to the last 40 percent of its service area. SBC squarely blamed federal regulations for the cuts. "

Probably every DSL company that existed worked to get there act together so as to be an attractive buy-out candidate. It is acknowledged that you can't compete with the ILEC forever.

There are legislative time-bombs ticking and technologies like G3 (a broadband, wireless voice/data/video transport service) When you're owned (Like NorthPoint would have been owned by Verizon) by a company that will be cooperative in provisioning the last mile and provides least cost/highest quality access to their high speed backbone transport, your provisioning and quality of service issues disappear.

How long the ILEC holds "the service provisioning ball" in their court, and whether they serve it back muddy or not is beyond a DLECS control.

Note the authors words:

A deep-pocketed knight in shining armor was exactly what the executives of the big three DSL providers were looking for when they founded their companies, says Mike Smith, co-founder and managing director of the Telecom Strategy Practice at Stratecast Partners

"When looking at the U.S. telecom market, for a BOC or IXC to compete nationally, they needed broadband facilities," Smith notes. "But the problem the DLECs ran into was that they took their eyes off the service provisioning ball."

This article is just 2 years old and it's full of tombstones -- companies that no longer exist. Competing against an ILEC is a tough way to earn a living.