Over the past year, small and mid-sized businesses have begun embracing a high-speed Internet option called digital subscriber lines, or DSL, and in the Washington area, industry analysts say, this trend comes at the expense of Bell Atlantic Corp., the region's dominant local phone company.
DSL is an "always-on" Internet link that operates over ordinary copper telephone lines at a higher-than-normal frequency. It carries much more traffic than customary phone-modem links, and is far cheaper than the high-speed, high-capacity T1 lines offered by phone companies such as Bell Atlantic.
But DSL has its weaknesses. The DSL signal fades as transmission distances increase, so customers must be located roughly within three miles of a phone company's neighborhood central office, where all the copper phone lines come together.
The more densely packed the three-mile circle is, the more profitable it is for DSL providers to stake their claims. That's why business districts in major metropolitan areas are the prime targets for this service.
Internet service providers (ISPs) sell the service to these business customers, then use the phone lines of Bell Atlantic and other incumbent phone companies to deliver it. So far, the phone industry has been slow to react to this challenge, analysts say.
The Internet providers have sweetened their DSL offerings with competitive prices. A business DSL subscription can range from as low as $130 a month to $600 monthly, depending on the speed. These prices are significantly cheaper than the costs of T1 service, which can reach $2,000 a month.
According to a study released last Monday by telecommunications consulting firm TeleChoice Inc., 81 percent of DSL subscribers of Covad Communications Corp. and NorthPoint Communications Inc., two major DSL providers, are businesses. Only 16 percent of the Baby Bells' DSL customers are businesses.
The competitive threat to the Baby Bells lies in the maxim first come, first served.
It has proved easier for the new DSL firms to run off with phone companies' business clients simply because they are more nimble than the Baby Bells, analysts say. "Any really large company will typically move very slowly," said Laurie Falconer, DSL consultant for TeleChoice. "All that bureaucracy can slow things down."
Bell Atlantic offers DSL service in only six metropolitan areas on the East Coast. UUNet's DSL service is available in more than 20 markets nationwide. Both offer DSL service in the Washington area.
Some analysts say the Baby Bells may be going slowly with DSL service to business to avoid cannibalizing their other business offerings, but Bell officials deny that.
"People don't realize that the size of the DSL market is growing really rapidly," said Jeff Waldhuter, director of technology and engineering at Bell Atlantic Corp. He compared the DSL industry to the cellular market, which generated tremendous competition but also grew so quickly that the strongest firms could thrive.
Nevertheless, analysts say the Baby Bells are missing out on the most attractive part of the DSL market -- the business clients, who tend to be less fussy about price than residential customers.
"Per dollar invested, we get more in return," said Ralph Montfort, DSL provider UUNet's director of product marketing in dedicated services. UUNet is a subsidiary of MCI WorldCom Inc.
Residential DSL charges range from $40 to $60 a month, depending on what speed the subscribers request. That's more than double the average monthly cost of a dial-up service such as America Online.
But the DSL industry does not have a clear field ahead of it. A major threat is likely to emerge from cable modem technology, which delivers Internet traffic over cable television lines into homes and business.
While DSL service is expanding five times faster than the cable modem option, TeleChoice found, cable modem operators have more than 800,000 cable lines readied for high-speed Internet delivery, TeleChoice stated.
More than two-thirds of the nation's households are wired with cable lines, analysts say. Local cable companies such as District CableVision Inc. are rushing to upgrade their networks to bundle high-speed cable modem access with their other programming packages.
It's clear that the demand for DSL services will continue to grow at a rapid pace over the next several years, analysts say. It's less certain whether DSL deployments will be able to keep pace with the demand for this service. Even before Bell Atlantic entered the New York City DSL market on July 15, the company had received more than 8,000 reservations.
"No matter how fast you get the service out, there's not going to be enough coverage and there's always a lot of backlog," said Karuna Uppal, a senior analyst at the Yankee Group, a telecommunications research company based in Boston.
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