DSL Broadband Providers Perform Balancing Act

November 1, 2005

Thomas Mennecke

Not quite. Jonathan Banks, who spoke with Slyck.com, readdressed this issue.

“The point I was making was that in addition to the investment in DSL and upgrading the access part of the network to carry faster broadband and IP TV, we also invest a lot in our regional backbone network. Much of that investment is driven by the increasing amounts of traffic, and peer-to-peer file sharing is a key chunk of that increasing traffic. As DSL prices keep going down, it is not clear where the revenue is going to come from to keep upgrading the regional backbone and increase the speed of DSL. Given the way traffic seems to be increasing, and I'm sure that there will be more video file sharing or things like that, unless capacity is increased traffic flow will suffer - which some might call "port blocking."

Arguments of backtracking aside, Mr. Banks is referring to a type of de facto port blocking. This is where the ISP diverts its attention away from higher bandwidth concerns, and concentrates on other aspects of the network, such as HTTP or email traffic.

“My point is that without sufficient revenue to justify increasing investment, we are going to get to a place where at least some high bandwidth services might not work so well because of insufficient capacity at peak usage times. I don't think this should fall into the "port blocking" category, but some might argue that it does.”

The balancing acts DSL providers face is keeping prices low while still providing all the services that consumers demand. This may result in prioritizing services, but not the absolute blockage of high bandwidth traffic such as P2P or BitTorrent.

“I think that the key issue going forward could well be prioritizing traffic based on consumer expectations. This will be especially true as we roll out products like IP TV that take a lot of bandwidth. I expect that customers will want their video and voice to work, and would prefer that their web browsing or file sharing slow to accommodate those other services. So I think port blocking is pretty unlikely (except I can see where some sort of blocking of individual computers, sites or perhaps ports may eventually be necessary for security reasons - viruses etc.) My comment on blocking was meant to illustrate that there is the kind of Madison River port blocking that appears to have been aimed strictly at a competitive service, and then there is a network management side of the story, and that the whole issue is more complex than a simple black or white debate. I understand why the port blocking words are quotable, but without some context, they will be misinterpreted.”

DSL providers such as Bellsouth are in a technological arms race with their Cable counterparts. Cable broadband providers enjoy a considerable lead in market share, while subscriber’s bandwidth allotment is typically greater than DSL customers. In response, DSL broadband companies are fighting back with lower prices – significantly lower prices. On Long Island, Verizon DSL has slashed their low-end 760-kilobit service to only $14.95 per month. This is in stark contrast to Cablevision’s Optimum Online, which sells for $49.95 per month, yet is 13 times faster at 10 megabits.

This strategy appears to be working as the sheer number of DSL subscribers continues to grow rapidly. In BellSouth’s third quarter financial report, revenue remained strong despite the hellacious impact of Hurricane Katrina. Although BellSouth serves much of the southern region of the United States, communications revenue was only down by $44 million. In addition, BellSouth added 205,000 net DSL customers during the third quarter, totaling nearly 2.7 million individuals. The growing DSL user base may allow for BellSouth’s costs to be spread over a wider population, allowing revenue to increase (i.e., economies of scale) and potentially reinvested into its network.

"Results for the quarter remained strong despite extraordinary challenges we faced with Hurricane Katrina," said Duane Ackerman, Chairman and Chief Executive Officer. "Our employees demonstrated tremendous commitment to serve our customers. At the same time, we maintained focus on the key growth areas of our business, delivering solid revenue performance and continued customer growth from broadband and wireless services."

While revenue stands to improve for DSL providers, so does the technology. Several new DSL standards are being developed, such as VDSL2 (Very High Bitrate DSL) which literally blows away the competition. If one is fortunately enough to live within 1 mile of a central station, the individual could experience a 30 to 50 megabit connection. ADSL2+, a more modest service also manages to draw blood from copper wire. If the individual live 2 miles or less from the central station, he or she could enjoy a 24 megabit connection.

In the unlikely event the situation reaches critical mass for broadband DSL providers, its possible traffic will be prioritized for more common usage, such as web traffic. Yet Jonathan Banks tells Slyck.com this does not appear imminent, as Bellsouth continues to invest in upgrading its network. In the fight to keep prices low, bandwidth plentiful and customers happy, DSL providers such as BellSouth have a tremendous amount of work ahead of them. Yet the future of DSL appears bright, as widening a widening user base and emerging DSL technologies keeps the prospect of port blocking dim.