Free DSL: All Talk, Little Action?

SAN FRANCISCO (06/26/2000) - Digital Subscriber Line service is leading the way to high-speed Internet access, according to a study that forecasts a 77 percent growth rate in the next three years.

Research firm Cahners In-Stat Group expects the DSL market to grow about 77 percent annually through 2003. But the growth faces a number of obstacles, from the need to educate customers, to the realignment of expectations about cheap or "free" DSL service, according to In-Stat analysts.

In the quest for faster Internet access, DSL is the main alternative to access via cable modems. Capable of carrying data at speeds of up to 1.5 mbps, DSL theoretically can download data about 27 times faster than a 56-kbps modem.

Download and upload speeds may differ on the same connection, however.

The data runs over standard telephone wire but potentially can handle voice and data simultaneously, making it especially appealing for residential or small office use where phone lines may be limited. Still, your speed may vary depending on your distance from the service provider's central office.

One obstacle is limited availability. Because DSL runs on standard copper telephone wire, users are at the mercy of telephone companies and their Internet service providers. US West Inc., Bell South Corp., and other large firms are focusing on urban areas, but it will take longer for DSL to reach less populated rural areas. What's more, customers must be within two miles of a central office to get service. Around 60 percent of U.S. phone customers live in areas that are likely to support DSL, according to the industry trade group ADSL Forum.

Confusion Over Varieties

What's more, not all DSL is the same. There are the high-end IDSL (ISDN over DSL, which supports 144 kbps both downstream and upstream) and VDSL (very-high-speed DSL), which supports rates of up to 52 mbps downstream and 1.5 mbps upstream. Most often, you'll see Symmetric DSL (which moves upstream an downstream at the same speed, about a maximum of 1.5 mbps) and Asymmetric DSL.

On top of that, Asymmetric DSL comes in two varieties: full-rate ADSL and ADSL-Lite, also called G.Lite. Usually, the so-called free DSL services provide ADSL, and typically the slowest version of that type of DSL at that.

No Such Thing as Free?

A growing number of services offer DSL at a discount--usually in exchange for viewing ads. But the service is usually not truly free of charge. Consider Winfire, which offers access speeds of up to 144 kbps, along with an e-mail account, plus a dial-up account as a backup or for use when you travel. But you must buy a DSL modem for $200 or $9.95 monthly.

You get the service in exchange for providing demographic information that enables Winfire to send a barrage of "relevant" advertising. Winfire ads appear constantly on a toolbar.

The reason for the ads is clear. According to the In-Stat report, it costs between $150 and $200 yearly plus installation costs to support a single DSL customer.

In fact, advertising alone isn't enough to keep DSL service "free." Service providers hope to earn revenues through upgrades, such as Winfire Inc.'s option to get symmetric DSL for $35 monthly; and through additional services.

Prices May Evolve

These cost structures are "by far the biggest obstacle" for DSL service providers, says Mike Lowe, a senior industry analyst for In-Stat. Line-sharing and other developments will help ease costs, but Lowe expects free DSL signups to move slowly.

Some analysts are more optimistic.

"There are trends within the Internet industry that suggest free DSL may have a brighter future," says Kate von Goeler, another In-Stat analyst.

She says free DSL may become more viable as infrastructure costs and retail modem prices continue to drop.

"Current obstacles make free DSL an uncertain proposition over the long haul," Lowe agrees. But if providers meet the many obstacles, "free DSL providers will have a real impact on the rapidly growing DSL and broadband markets," he adds.

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