DSL Prime: SBC's Technology Risk

SBC is preparing to risk it all on unproven technology, ensuring that this company will lose the bandwidth war to cable.

by Dave Burstein of DSL Prime and Future of TV [November 16, 2004]

SBC's technology risk: VDSL2, 2006-2007, millions of lines
Promising to go beyond the state of today's art
Questions poured in after the investor call. "SBC thinks they can do 20 to 25 Mbps at 5,000 feet. Can they?" "Will they really be able to do four channels including HDTV plus high speed data?" It's not impossible that in two years they can deliver millions of lines with technology that today is still in the labs, but that's quite a challenge.

SBC's architecture, as DSL Prime previously reported, is VDSL2, currently still under active debate in the standards committee. Vendors including TI, Conexant, Infineon and Metalink are working actively, all hoping for sample chips in 2005. These are complicated designs, so it's highly optimistic they will be field ready for early 2006.

Field units, presumably mostly the new Alcatel boxes, are set to go at existing network points, which SBC's presentation see as mostly within 5,000 feet, although many are more. As I reported last issue, "Unfortunately, the telco goal of 30 Mbps down, 5 Mbps up at 6,000 feet will be hard to achieve." SBC is working with John Cioffi, TI and others to improve that performance.

Currently, HD with the very expensive MPEG-4 is 10 to 12 Mbps , SD 2. That will go down over time, but not necessarily in 2006. SBC believes they can reliably deliver 1 HD and three SD channels as well as 6 Mbps down, 1 Mbps upstream. That's tough just on the arithmetic, with some overhead involved, and QOS issues if you push things.

If you assume many high-value customers will want a DVR that plays one HD channel while recording another, this simply isn't enough bandwidth. That's likely to be the standard configuration by the time SBC's network is built.

A fantasy
Randall Stephenson, SBC COO, is a numbers man. So it's easy to imagine his telling his tech team "We're not raising capital spending, so do what you have to do to come in at this price." Chris Rice then assembled a team, saying "This is the budget. Find a way to meet it." They brought in the best and brightest from vendors and universities, and said "find a way."

The answers came back. "We can do this, and then that, and count on the third thing. It's not impossible, perhaps. But it's still a long shot. The cable companies may eat your lunch." Perhaps Rice went to the boss, with "We can " on the first page, and the caveats in the fine print that wouldn't be read. Alternately, the decisionmakers had all the facts, said "we'll take a chance, and fix it if we have to."

Reality
SBC has world-class engineers, who understand these issues far better than I do. So they almost surely have contingencies ready, for 2007 and 2008, if needed. That might include doubling the number of field units, to get to 3,000 feet. They may be ready bond two lines together like BellSouth, which has been suggested as part of the VDSL2 standard. Fiber costs will be down in 2008-2010, so perhaps they can build fiber in later years, even if it means writing off much of this build very quickly.

Unsolved problems include the clear customer desire for higher upload speeds (cable is going to 10 Mbps), maintaining quality for both video and the "residual" data, and whether outsourcing the network to Alcatel will work well in practice. SBC has cut deeply into engineering, and has 10,000 more heads on the chopping block. That has to make things harder.

Opinion: Are SBC/BellSouth fighting cable in 2002 or 2007?
In the 2007-2010 time frame for this network, Brian Roberts indicates Comcast can be deploying 50 to 200 Mbps cable modem service, as well as hundreds of channels of HDTV. So even if SBC's technology works, they will have a considerably inferior offering. That makes hard to accept their projection of profitably growing market share.

Implicitly, the technology chosen assumes cable will not improve their offerings. With satellite taking market share, I don't think has any choice. Anton Wahlman of Needham is watching closely, writing, "We do not believe 20 Mb/s or even 50 Mb/s will be nearly enough to compete intelligently against the cable TV companies. We believe the only successful strategy takes ... superior offerings in the areas of DVR, VOD and HDTV. The strategies most telcos contemplate do not support such success. Non-MTU DSL cannot feed multiple multi-tuner DVRs with HDTV, as four channels of HDTV will likely take at least 30 Mb/s even under MPEG-4. It is as simple as that. ... we believe it looks like they will only be able to attract the least attractive customers. "

Verizon, on the other hand, appears to be doing the right thing and skipping new single-family home DSL architectures in favor of FTTH. ... It seems to us that Verizon is making the far smarter bet, although it also has flaws."

Copyright 2004 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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