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Despite the gloomy outlook for the downtrodden data competitive local exchange carriers, and DSL leader SBC Communications' acknowledged Project Pronto setbacks in its Ameritech region, industry analysts expect DSL deployment to continue its robust pace.
"We won't change our view of the market because of the data CLECs and other bumps that DSL providers encounter," says Joe Laszlo Jupiter Research's senior analyst. According to Jupiter estimates, 2.4 million households will be outfitted with DSL by year-end 2001, growing to 11.8 million by year-end 2005.
Like Laszlo, TeleChoice DSL Analyst Adam Guglielmo remains bullish on DSL. Guglielmo is revamping his firm's projections and expects to increase its year-end 2001 DSL numbers. As of the end of third-quarter 2000, Telechoice reported 1.7 million DSL lines were in service in the United States, a 520,000 increase over second-quarter 2000. "We think demand is great and that numbers will continue to go up," Guglielmo says.
In early 2000, independent DSL providers like Covad Communications, NorthPoint and Rhythms NetConnections were nipping on the heels of the incumbents, forcing them to either become more aggressive with their deployment plans or risk losing market share to these upstarts. But that scenario dramatically changed this fall when these wholesale providers experienced difficulty getting their ISP resellers to pay their bills. Subsequently investors lost faith in the DLECs, which prompted their stocks to plummet and forced them to layoff employees and revamp their customer acquisition strategies. Covad Communications, once considered the most aggressive U.S. DLEC, announced Jan. 8 that it had 274,000 DSL lines in service (a 34 percent increase over its third-quarter subscriber count of 205,000), but is not recognizing revenue on approximately 92,000, or more than 33 percent of its subscribers. The company also reported that it is not being paid by 19 of its ISP partners, four of which have filed for bankruptcy.
But the DLECs aren't the only DSL providers to have difficulties. In December, SBC Communications announced it would adopt a "measured" approach to its DSL deployment in the Ameritech region over the next several months so it could focus on customer service problems that have plagued those markets since SBC bought Ameritech for $74 billion in 1999.
Company spokesman Shawn Dainas says SBC plans to use all its available technicians to repair existing access lines and make sure that customer service in the region is improved, instead of promoting and deploying DSL. But Dainas says that the company still intends to continue deploying DSL in the Ameritech region and that it doesn't expect its DSL deployment projections to be lower than expected for year-end 2002. "The numbers will be the same in the Ameritech region by the end of 2002. We are just taking this approach for the next few months, not the whole year."
Despite current deployment issues, analysts say that the incumbent phone companies likely will make up for any shortfalls created by the foundering DLECs and that new CLECs like Sprint will help keep DSL deployment on pace.
In fact, Verizon Communications, which was on the verge of handing its DSL affairs over to NorthPoint before that deal went on the rocks, says DSL will continue to be a growth engine. The company says it beat its year-end subscribership projections by 40,000 customers, for a total of about 540,000.
And BellSouth reports that it topped last year's goals by about 7.5 percent, with 215,000 DSL subs at year-end, and will move aggressively to hit 600,000 by the end of 2001.
"The incumbents have the advantage because they have multiple revenue streams to ride out this market and they own the copper plant," says Cahners In-Stat analyst Daryl Schooler. "Lots of companies delivering the DSL link are not going to survive, but DSL technology has an extremely bright future and will survive."
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