Qwest's Broadband Vision
ILEC's broadband point man aims at new services
from the June 4, 2001 issue of Broadband Week
If ever there was a broadband service provider at a crossroads it's Qwest Communications International. The company that is IXC, ILEC and, in some markets, DLEC, is moving to take broadband connectivity to an ever-broader swath of the potential customer base. One of the key executives leading that effort is Lewis Wilks, executive vice president of Internet Business Development and Qwest's chief strategy officer. Wilks recently spoke with Broadband Week senior editor Jeanie Stokes about the company's broadband initiatives such as remote DSL terminals and broadband satellite services to remote areas.
BW: You said recently that the broadband promise hasn't been broken. Why?
Wilks: Everyone had taken the concept of broadband evolution and displaced it with an expectation of almost instantaneous revolution of products. People thought things were going to happen much more radically. Obviously, the last year has reminded us of some fundamental tenets, which are that growth, profitability, quality and value all are key.
The broadband promise was not about discounting something by 6 percent and then increasing the price by 7 percent and charging shipping and delivery of goods and expecting it to translate to a value proposition. It is about improving the quality of relationships between companies, between companies and consumers, and consumers and each other.
We have a much more sane foundation now than what we were operating on for the last couple of years. That doesn't mean that there weren't barriers earlier. The incumbent local exchange carriers, for the most part, continued to operate with a monopolistic point of view, not from an open market point of view. For most of the last decade, we've talked about broadband, but we weren't investing in the infrastructure to bring it to the consumer. In America, 50 percent of consumers say they'd like a broadband connection. Seven percent have one, in one form or another. There's a fairly large market opportunity for those companies prepared and willing to attack.
BW: Where do we go from here regarding what's possible with broadband services? Have the big companies become the standard bearers now that the little guys have either gone out of business, run out of money or been acquired?
Wilks: It is not just about size. It is very much about the ability to support customer cost effectively. The new entrants'--predominantly the CLECs and DLECs--biggest barrier was in operational support systems. If you're just throwing bodies at the problem, you can provision customers and make the service happen, but it's not a very cost effective way to run a business.
A lot of the new market entrants expected to acquire market share first, and later come back and put in the operational support systems to improve the efficiency of those products. We have operated throughout our whole deployment of broadband on the premise that you have to have automated, scalable billing and operational support underneath your platforms. Even with all the wonderful technology that we've built today, networks still have problems. It's pretty important that you're able to isolate, repair and implement new technologies without having manual processes as a contingency in every step of the way.
Does that tend to favor larger, more well-capitalized companies? Absolutely. There are large, global, multinational telecommunications companies that will leverage size, scale and capital to be very effective in their broadband deployment. But never discount or assume that size will outperform a new market entrant who's smart enough to invest in the right disciplines to perform in the marketplace. Being fast and nimble can be a tremendous asset, especially when you're dealing with a market that's as wide open as broadband is.
We think of broadband almost as a mature technology in some aspects, but 94 percent of the people in the world aren't even online yet. So we're still very much in broadband's infancy. There will be lots of new entrants over the next decade. They will have learned from the mistakes that have been made in the last 10 years, and will leverage that knowledge directly in terms of achieving significant growth in the market.
BW: What is Qwest's take on virtual private networks?
Wilks: The industry really screwed up. We spent three years talking about VPNs but not deploying them. Now you've got an industry that's almost gun-shy of the technology. Why haven't we seen proliferation of VPN? The reality is that it's a very complex technology. It took years to work the kinks out. Running secure transactions over Internet Protocol is a stickier wicket than a lot of people thought it would be. Now that it works, the opportunity to operationalize next-generation networks at a fraction of the cost of traditional frame networks, it's going to be a huge marketplace. I understand why some of the large long distance players don't want to stimulate that market, because they have a lot of market share to lose. For us, it's a huge market opportunity.
BW: At Qwest, what broadband deployment obstacles remain?
Wilks: The primary obstacle is making sure it's available to anyone who wants it. The biggest barrier that traditional telecom providers had in the 1980s was service intervals. When we all wanted a second line to hook our computers up, we were told it would take six, eight weeks; we're all out of lines in your neighborhood; it may take six months. There was almost a panic in the industry over service intervals. What was deployed was technology that allowed you to get two, four, six, eight phone lines out of a traditional single-pair configuration. It was a great way to fix the service interval problem. Then along comes broadband technology and, guess what? It doesn't work through that technology. You've got millions of consumers for whom you've now placed a barrier between a technology that everybody wants and the infrastructure that now has to be repaired.
Technology now is eliminating a lot of the barriers associated with that splitter configuration. The industry doesn't run splitters anymore. We're also finding ways to pump broadband through traditional splitters in infrastructure, such as remote terminal equipment and DSLAMs in the neighborhood.
BW: So, remote terminal technology fixes that problem?
Wilks: It does. It puts the technology out in the neighborhood so it dramatically increases the percentage of users who can access the technology. Within our core metro areas by end of next year, 87 percent of Qwest consumers will have broadband service in their coverage areas. That's pretty good when you think about the geographic uniqueness of our service area. We're investing in technologies like remote terminals so service is actually there.
BW: What about DSL deployment in areas outside Qwest's 14-state local service area?
Wilks: It's focused in 25 markets in the U.S., and it's been predominantly a business service opportunity. But now, as we partner with more of the Microsofts and the AOLs of the world, those distribution channels probably will broaden our reach on a consumer basis as well.
BW: What about those customers who aren't in urban areas?
Wilks: There are a couple of things that begin to open that marketplace much more aggressively over the next year to two years. Probably the single most impacting technology is Ka- and Ku-band satellite Internet service that is commercially deploying this year. It literally opens up broadband capability for the entire U.S. That's a technology that probably won't compete against DSL and the cable modem market. It will target those markets where cable modems and DSL are not readily available.
For those of us who grew up on the ranch in northern Idaho, the prospects of having broadband deployments have been, for the last 30 years, nil, and understandably so. To our house, we have three miles of copper running and when the snows are bad, and trees fall down, we've learned to live with the fact that it's going to knock down the copper line running through the trees.
I can now get the DirectPC service, but Ka and Ku are much more powerful in terms of the quality of service--basically running 1.5 Mbps downstream for anybody.
1.5 Mbps downstream on a ranch in northern Idaho is pretty awesome. We have moved from nowhere to an extremely high-quality broadband infrastructure in a very short period of time! That, to me, is one of the big "wow" technologies. It opens up massive amounts of remote communities to the world of the Internet. That becomes more pervasive, more impactful over the next 24 to 36 months, as you open up Eastern Europe, South America, or Africa. You're going to have huge amounts of the world population that not only now have access to information, but they also can contribute information.
We haven't really seen any impacts on a global level yet from this technology.
BW: What satellite companies Qwest is working with?
Wilks: We have relationships with most of them. We see satellite technology as an opportunity to partner, because there's no such thing as a bad broadband connection, whether DSL, cable or satellite. Stimulating broadband access is a good thing for Qwest. We're not just an incumbent local exchange carrier. We are unique in that we are a hybrid carrier. We are the third largest Internet carrier in the world and we have this massive global network that carries lots of IP traffic.
We asked some of our engineering and marketing teams "what are the impacts of this next generation of satellite technology and how do we leverage that in our operating model?" The answers were pretty interesting. Satellites are a great way of getting information from point A to point B, but you have to do it on a direct basis. You don't want to broadcast the same signal through 14 satellites. To do that, you have to have lots of terrestrial networks to grab the information and move it to the right satellite so it's directed to the user who needs it.
That stimulates the need for lots of bandwidth on the ground. We approached the next-generation satellite marketplace and said, "We'd like to put together service elements to help you manage the effective use of your assets." Without exception, we found not only a ready market for us but also found opportunities for us to collaborate, for example, in filling service gaps in rural areas.
BW: Where does video over DSL stand?
Wilks: When we first looked at very high-speed DSL deployments, we found a technology that was absolutely compelling. We have 50,000 users on that service in Phoenix today, and are deploying it in Denver as well. Almost without exception, people love this service. It's a digital video product that's comparable to anything on digital cable or satellite and it's integrated video and high speed Internet.
However, it's too expensive. The last year we've focused on improving the cost per subscriber for VDSL. We've taken over 60 percent of the cost out of it in the first year. We're not 100 percent to our objective yet, but are reaching the point where I may have a product that lets me effectively compete against cable. But I'm not going to aggressively deploy it until I've achieved that cost objective and know that we can make money doing so.
BW: What do you see as the potential for video-on-demand?
Wilks: Video-on-demand and digital cinema are all about how you take digital content, store it and deliver it when people want to see it. Putting consumers in control of when and how we leverage digital content is a massive part of where this industry will be focused over the next several years.
The next big growth market will be near video-on-demand. Will I have access of the entire archive of everything that's digitized in the history of the world instantaneously? Not in the foreseeable future. The amount of capacity required for that kind of spontaneity and instantaneous broadband delivery to every home is probably not cost efficient. People wouldn't pay the price. However, it is very feasible over the next few years that every new release will be available. It's probably going to be downloaded onto that set-top device at night and be sitting there with an encrypted key that says, "would you like to purchase the "Miss Congeniality" video? You can now watch it anytime over the next four days for $4.99." At that point, it'll be locked back up. You can watch it again over the next four days for another $4.99.
Second, devices will learn, over time, which kinds of movies you like and begin to download other relevant movies from those archives. It's a service that's going to get incredible traction in the marketplace.
BW: When's that likely to happen?
Wilks: I think you'll see it evolve over time. You're seeing it now in the current generation of consumer electronics devices--the Ultimates, the TiVos--that are hitting the marketplace. Those devices get a lot smarter, a lot more secure and a lot cheaper over the next 12 to 24 months.
BW: Is the holdup right now the content owners figuring out a way to charge for it?
Wilks: Security of the content is the biggest concern I hear from the content providers today. There's a $400 million market that hasn't been tapped of people who say, "I don't want to go to the movies.'" Most people who go to the movies want to get out of the house. There's a $400 million market of people who literally would pay $20.95 to not have to get in their car to watch a new release, like "Pearl Harbor." Are the movie producers worried about the security of that content? You betcha. If somebody figures out how to crack that, the next thing you can buy a DVD of "Pearl Harbor" at the flea market for four bucks. They haven't maximized the revenue potential of that new release in the theaters. That's a problem. Lots of emphasis on security of the content and maximize the revenue potential in the theatre, the home and in the aftermarket, through DVD. We spend a lot of time with those folks (content owners). We want to be the storage, the network and the transport, and content management in context of macro storage and delivery systems.
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