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[P]
DSL Companies fold, consumers suffer. Where was the government?

By Lelon in Op-Ed
Tue Sep 04, 2001 at 01:48:04 AM EST
Tags: Internet (all tags)
Internet

I'm sure you've all heard about the recent bankruptcies and buyouts of DSL companies. Now prices are up, service is down, and the consumer is screwed. Why isn't the government doing something?


One year ago, I placed a DSL order with Telocity. They told me that before my DSL line could be used, PacBell, my "last mile carrier", had to "connect something". To this day I don't really know what that involves. Four months later, I was finally on DSL. What took so long? Simply put, PacBell offers its own DSL service, so they were in no hurry to connect a rival company's DSL subscriber. For kicks I called PacBell during this whole fiasco and asked them, theoretically, how long it would be after I ordered before I had service. They guaranteed me no more than 3 weeks.

Surprise surprise, Telocity becomes DirecTV. Other, smaller DSL companies have declared bankruptcy. Now, DSL prices have risen to an average of $50 a month (the cheapest available in my area), AND the speeds are slower. Where I once could get 1.5mbps download for 40 a month, I can now only get 700kbps for 50 dollars a month.

What's worse is that since PacBell doesn't need to worry about competition, they can do things like restrict newsgroup access. Its pretty clear the government dropped the ball on this one. When one company's service depends on another company its in competition with, the free market system obviously can't work.

Sadly we're left with a situation in which government involvement is highly unlikely. Frankly, until cable modems are available in the more "rural" areas, this situation will never change. I'm hesitant to use the word "rural", because I live in a fairly large college town very close to Sacramento, which is in no way rural, but "too small" for AT&T to provide cable modem access.

So how in the world did the government not see this coming? The whole mess just screams of something those justice lawyers would love to sink their teeth into. They've constantly interjected in various cases involving telco companies, sometimes when they probably shouldn't have. Yet somehow, numerous DSL companies going under just slipped under their radar. Maybe it's the giant campaign contributions. Or maybe there are actually people out there who don't think the government should get involved in monopolization? That's a scary thought...

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DSL Companies fold, consumers suffer. Where was the government? | 26 comments (25 topical, 1 editorial, 0 hidden)
A persistent problem (3.85 / 7) (#1)
by adamsc on Mon Sep 03, 2001 at 05:39:15 AM EST

While you can make a case that most of the broadband companies' problems are primarily the consequences of ludicrously inept management and shoddy service, the long-standing issue of last-mile control isn't going away any time soon. Neither the phone nor cable companies have any serious intention to provide access for competitors. It may not be as bad in the US as it is in other countries (e.g. Telstra offering DSL service to consumers for only slightly more than they charge competing ISPs for the bare line) but it's already delayed widespread broadband adoption by years with high prices and poor service...

Welcome to the real world. (3.72 / 11) (#2)
by Anonymous 6522 on Mon Sep 03, 2001 at 05:50:27 AM EST

Now, DSL prices have risen to an average of $50 a month (the cheapest available in my area), AND the speeds are slower. Where I once could get 1.5mbps download for 40 a month, I can now only get 700kbps for 50 dollars a month.

That's actually better than the prices around here, and I don't see why you should complain. I pay $45/month for my cable modem (it would be $10 more if I didn't get cable TV), I get 560kbs down/128kbs up. DSL in my area has slightly better speeds (640/256), and it's also slightly more expensive and have a smaller coverage area. It's always been that way, none of the local broadband providers have gone out of business.

Think of it this way: You lucked out and got a T1 speed connection for $40/month, now you get to pay what everybody else does for what everybody else gets. VC is no longer subidizing you internet connection.

state in switzerland: (3.80 / 5) (#3)
by naru on Mon Sep 03, 2001 at 06:26:58 AM EST

In switzerland where the local telco (small country, market opened up ~4years ago -> prior monopolist still holding the last mile) just recently introduced ADSL, consumers pay up to 120$/month for a 512/128 line. btw this is also the fattest connect offered to private consumers atm.

I'm sure all of this is gonna change in the next months, but you guys really shouldn't complain too much :)

[ Parent ]

Your point is well taken but... (3.66 / 3) (#8)
by BrentN on Mon Sep 03, 2001 at 11:35:48 AM EST

Would the awesome deal he had still be in effect had the government not allowed the *sanctioned* Regional Bell Monopoly to run the competition out of business? I think that is the real point behind the post. The RBOCs have bribed, cheated, and stolen to get the government to avert its gaze while the Bells eliminate every whit of local competition - not just in broadband space, but in the cellular and local-loop businesses as well an when you consider in imminent demise of Excite@Home and the AT&T's avowed intent to divest itself of their cable services business, one would be foolish indeed to places one's hopes in the cable industry as a way out of this mess.

[ Parent ]
Hmm, it can be worse. (4.42 / 7) (#4)
by Surial on Mon Sep 03, 2001 at 06:58:18 AM EST

I live in Holland. It's even stranger over here. About 5 years ago (Not exactly sure on the timeline here), our public phone company got privatized. In the privatization, a pretty big mistake was made: The copper infrastructure was given to the same company. In order to promote competition, a separate government-controlled entity called the OPTA was created. It's task: To make sure that KPN (the now privatized phone co) doesn't exploit it's monopoly powers.

After almost 4 years of privatization, KPN finally 'worked out the problems' (What problems?) in making a system where you can select which phone co services your call (by dialling a prefix).

In the mean time, KPN has a debt of about 400 dollars per dutch citizen (about 20 billion dollars or thereabouts), and they are having a lot of trouble finding somebody to buy them out. It's that bad.

ADSL is here, and they have their own ADSL service. It stinks, pretty much. not always online, some filtering, and NOT very fast, and no servers allowed.

A few other companies are rolling out ADSL on their own, only requiring KPN to stick in a wire between a little box sitting OUTSIDE a KPN owned switchbox, and the switchbox itself. Cistron Telecom, one of these companies, is offering full speed ADSL (1MegaBYTE per second down, an eight of a meg up), with a 'fair use' of 35GB (not checked), static IP, and a guarantee of a quarter of a meg down (Ever heard of a ISP guaranteeing a certain amount of bandwidth?). Servers allowed and always-on, too, by the way.

KPN has successfully run them out of business, by asking enormous amounts of cash for sticking in that cable and the rent of the ground of that little box. The OPTA has put some fairly hefty fines up for this practice, but KPN just paid them while waiting for the ADSL competitors to die out.

... and here I am, still dialing up for internet (which costs between 1 and 2.5 dollarcents every minute) at 56K, waiting... and waiting...
--
"is a signature" is a signature.

Someone does it right (4.28 / 7) (#6)
by psicE on Mon Sep 03, 2001 at 09:28:07 AM EST

Somehow, Canada offers broadband access, cable or DSL, to the majority of the people living in the country (urban or rural) for CDN$40, equal to US$25 or 28. AFAIK, this is the cheapest and most widely available broadband in any country in the world. What do they know that we don't?

The Canadian government ... (4.00 / 2) (#11)
by joegee on Mon Sep 03, 2001 at 03:55:43 PM EST

embraced the Internet as a communications medium, and moved quickly to encourage widescale deployment independent of the "market demands" that drive the U.S. technology cycle ...

<sig>I always learn something on K5, sometimes in spite of myself.</sig>
[ Parent ]
How about static IPs and SDSL in Canada ? (4.00 / 1) (#13)
by mami on Mon Sep 03, 2001 at 09:01:14 PM EST

What's the lowest costs for the lowest bandwidth with static IPs and and the permission to run your own servers in Canada ?

I am at $ 129.00 per month and think it's too much. Could I get it cheaper in Canada ?

[ Parent ]
In Saskatchewan (home of Inoshiro) (none / 0) (#25)
by Anonymous Commando on Wed Sep 05, 2001 at 05:24:53 PM EST

SaskTel, our friendly neighborhood government telco monopoly, offers 1.5 Mbps downlink / 128kbps uplink with 2 static IP addresses for $60 CDN per month (that's about $40 USD). The terms of service allow for servers on static IP accounts. If you're looking for a little more juice, you can upgrade to a 3 Mbps downlink / 640 kbps uplink with up to 10 static IP addresses for $150 CDN per month (about $100 USD). If you "bundle" your DSL service with unlimited long distance, you can pay even less.

Of course, this is only available in the 19 communities that SaskTel has designated (in their infinite benevolence), although they're adding another 27 before the year's end (including my town - yay!).

Dislaimer: I don't work for SaskTel - as a matter of fact, I'm really not all that fond of them most of the time, but I'm happy that I'm finally going to have a chance to get DSL. Maybe I'll even start K5'ing from home and concentrating on work at the office... :=]
Corporate Jenga™: You take a blockhead from the bottom and you put him on top...
[ Parent ]

Rural? (none / 0) (#15)
by paulT on Tue Sep 04, 2001 at 09:00:31 AM EST

What part of Canada do you live in?

I live in Alberta and while I've had broadband for going on five years (first cable and now DSL, both for under CA$50) but outside of the cities the farmers are still on dialup.

The government is embarking on a program to bring broadband to the majority of the province in the next few years but it hasn't happened yet.



--
"Outside of a dog, a book is probably man's best friend; inside of a dog, it's too dark to read." - Groucho Marx
[ Parent ]
My Bentley costs too much, Where is the Gov? (3.54 / 11) (#7)
by duxup on Mon Sep 03, 2001 at 09:47:32 AM EST


I can't see how companies going so far in the red that they have to close is a justice issue, regardless of your love of that service. Especially considering that the exact same service is still available (regardless of the price).

It's a bummer that you can't get 1.5 mpbs for $40 a month (how can anyone make $ selling that?), but that is just it a bummer. What does justice have to do with it?

Don't overestimate the costs (4.00 / 3) (#10)
by adamsc on Mon Sep 03, 2001 at 03:34:52 PM EST

The cost of bandwidth has been plummeting for years - somewhat faster than Moore's law, actually. The problem is that the phone and cable companies control the actual connections into most businesses and homes. Ever get a quote for a T1? The ISP's bandwidth charge is much less than the phone company's local loop charge, for which they will deliver the bare minimum service and blame the ISP anything goes wrong, even if they know they created the problem. This is also why the costs go down the more bandwidth you buy - a T3 is 30 times faster (45Mb vs. 1.5Mb) but will probably be perhaps 10 times more expensive simply because the telco costs are based on access, not bandwidth.

Once you adjust for the local loop and the more expensive equipment a T1 uses, the reason why a T1 is still more expensive than equivalent DSL are due to some different service-level expectations - most home DSL users are not using an appreciable fraction of their available bandwidth continuously and certainly don't have the dedicated bandwidth a typical T1 includes.

The problem is that this depends on amortizing your costs across a large number of users and that's rather hard to do when you have a phone company which isn't interested in helping a competitor install new service quickly...

[ Parent ]

Don't underestimate the costs (4.50 / 2) (#14)
by mwc on Tue Sep 04, 2001 at 06:33:05 AM EST

There's more to it than just a T1 (or T3, etc.). As an ISP you need a connection to the DSL provider and another connection to the net that is capable of bursting high enough to avoid complaints during peak hours. However, in order to pay for these things (and the many other things required to offer DSL services that I'm either not mentioning or just glossing over) you have to oversubscribe your user base. How much depends on which DSL provider you're dealing with. In my area it is Verizon and, until recently, I made $7/month for each user that wanted the 768k/128k connection (the Bronze Plus connection) for $39.95. The cheapest circuit to get this traffic to me was $500/month via frame relay. Not adding in all the additional costs of doing business and DSL already cost more to provide than anything else I offered (DSL pretty much only breaks even...dialup and webhosting actually make money).

PacBell (when they first offered DSL so it's probably changed) would have forced me to oversubscribe over 500:1 *just* to pay for their service (revamping our equipment to use ATM and the added costs of getting our backbone to the net upgraded made this impossible). So at peak times you probably would have seen dialup speeds.

So, yeah, raw bandwidth is pretty cheap but if you actually want to move data around and have it find its way to/from the net it starts adding up really fast. Massive oversubscription is one way to bring these costs down but it costs in quality. End users realize that there are many more costs to running an ISP than just raw bandwidth. Until then expect things to continue pretty much how they are for awhile.

Mike

[ Parent ]
That's why I think the issue is important (none / 0) (#20)
by adamsc on Tue Sep 04, 2001 at 05:48:16 PM EST

I quite agree with your comments - my point was that the problem isn't that the raw bandwidth is expensive but rather that getting it to the users is (I'm assuming that the costs of DSL support are pretty similar to normal dial-up support).

Do you think the phone company was providing service worth $32 / month on that line? Most of the complaints we hear tend to be from users rather than providers.

[ Parent ]

User complaints (5.00 / 1) (#22)
by mwc on Wed Sep 05, 2001 at 06:14:14 AM EST

Users complain about the service as a whole. Sometimes it's the ISP at fault and sometimes it is the telco. As an ISP I am obviously biased but the telco is usually at fault. Things are getting better but overall the ordering and support procedures are overly complicated and orders (install and support) can often be rejected for simple typos. Their support folks don't always tell the truth (I don't want to just call them liars). I've actually been watching a line that they were supposed to be doing intrusive testing on. It is very obvious when they're doing such tests but in this case I listened to him claim to be doing the tests when, in fact, nothing was happening. After the test came back okay (at which point they once again blame my equipment) I called him on it and he did a retest which not only magically showed up on my end but also fixed the entire problem.

However, I've gotten off track here. The point is things don't work and the user wants it fixed. The call their ISP which (hopefully) checks their system for problems. If the telco appears at fault then I call the telco and inform the user of such. Then if things aren't resolved in a reasonable amount of time things just sort of turn into finger pointing between the ISP and telco.

Since the telco that provides the DSL circuit does not also provide DSL service (they use the wonderful CLEC loophole they found in the 1996 telecommunications act) I suppose they are providing about $32 worth of service. The question is how much service is the ISP (either private or telco owned) for whatever you pay per month minus the line charge? In my initial posting I mentioned a 768k/128k line getting me $7/month after Verizon (then GTE) was paid. If I get the super-cheapo T1 at say $100/month (which doesn't exist) and you want upto half of that for $7 (again this $7 doesn't include any real operating costs...so no equipment, staff, etc. costs) how can I possibly stay in business without giving you the worst quality services?

Sure, I could offer other things and imagine DSL as a loss leader but why? I could just be a webhosting service or something else that doesn't require all the time and effort as DSL and actually lets me pay the rent. The only reason that telcos lowered prices for anything was, IMHO, they saw an opportunity to undercut their competition and wage a war of attrician (sp?). I'd say they're starting to may progress on some fronts (and if they successfully lobby Congress that only they should be allowed to offer DSL based on the recent failures then they've won that field and all price/service bets are off).

Mike

[ Parent ]
Yeah (none / 0) (#24)
by PhillipW on Wed Sep 05, 2001 at 11:44:31 AM EST

I am in total agreement with you here. I also work for an ISP and will back you up when you say it's almost always the telco's fault. It's too bad the telco doesn't really care if it's an ISP that isn't related to their company. It's so easy for them to say "Your ISP is f*cking up, if you went with Verizon Online you probably wouldn't have this problem."

I actually didn't know that the telcos were lobbying congress to block other ISPs from providing DSL service. That would be a catastrophe, both for local economies, and for the consumer.

PS: It's spelled attrition ;).

-Phil
[ Parent ]
Actually... (none / 0) (#21)
by PhillipW on Tue Sep 04, 2001 at 06:23:49 PM EST

You didn't make $7 in profit off of that, I am assuming. The Verizon circuit charge on a Bronze Plus connection is 32.95. I work for a provider that charges $49.95/month for a Bronze Plus connection. After paying for the customer support that is used on average per customer, and the bandwidth for these customers, we don't make any money on these. Of course, that changes should they order an additional IP address. Of course, Verizon can afford to eat these charges up in the long run, as it will create a market with little or no competition.

This bit comes from adamsc's reply:

I quite agree with your comments - my point was that the problem isn't that the raw bandwidth is expensive but rather that getting it to the users is (I'm assuming that the costs of DSL support are pretty similar to normal dial-up support).

Not really. Getting the DSL to the customer is expensive, both for the telephone company and to the ISP. The telephone company has to buy the DSLAM, and any other network equipment until the DSL traffic hit's the ISP's circuit. The ISP has to pay for these circuits. These are usually DS3's, both frame relay or ATM technology. Those are relatively cheap. The expensive part for the ISP is turning all the crap sent over this circuit into actual traffic. This takes very expensive equipment, the Redback SMS1000 is a good example. It costs in the neighborhood of $400,000. Other companies make other solutions as well.

Also, support on DSL is very expensive, much more so than dialup. Since DSL is a new technology, it is not yet problem free. This is only made even worse by the fact that the telephone tends to be very incompetent as a company, despite the quality of SOME of the people they hire.

-Phil
[ Parent ]
news... (3.00 / 6) (#9)
by Sikpup on Mon Sep 03, 2001 at 01:59:33 PM EST

The news system is a mess because of SBC's pro-spam policies. Their unauthenticated logins have increased spam to over 80% of postings, and the UDP is imminent, if it hasn't already been implemented. SBC is poised to surpass uu.net as the biggest black mark on the net.

couple of points (4.00 / 5) (#12)
by gbroiles on Mon Sep 03, 2001 at 05:19:52 PM EST

First, there's nothing the government can do about a basically uneconomic business - if the business can't give you service that you want at a price you're willing to pay, they won't make any money, they won't be able to attract investment, and they'll die. DSL providers signed people up to really attractive deals because they wanted to build market share quickly - but they can't keep selling you a service which basically loses money forever.

And, yeah, there's some price gouging that's happening because of a monopoly - but the first monopoly, the one you didn't mention, is the monopoly granted by your local government to your local phone and cable companies, such that they're the only ones allowed to make physical connections to all of the homes and businesses, or use the municpal rights-of-way which make running cable or putting up poletop radios feasible. I don't think it's wildly suprising that they're abusing those monopolies to raise prices and screw their competitors.



The problem & the solution (3.33 / 3) (#16)
by jd on Tue Sep 04, 2001 at 12:22:45 PM EST

The problem is easy to state. You have telecos who -hate- DSL (because it's much cheaper than a T1), and who usually have their own (poorly advertised) xDSL service, magically, mysteriously and moronically delaying ad-infinitum ANY and EVERY other xDSL provider on the planet.

(They are also fanaticaly converting as much dry copper to combinations of copper & cable. Even a millimeter of cable in the loop, and you can't run DSL. You =HAVE= to pay the teleco all that extra green stuff for a T1.)

IMHO, this is flagarant denial of service. The telecos lose money by doing their job, so they deliberately don't do so. This, however, probably violates all kinds of terms-of-service agreements, with the customer and the DSL provider. If you sell a DSL provier access to your system, then that provider should damn well get that.

Then, of course, there were the inevitable price-wars, publicity-wars and service-area-wars between DSL providers and between DSL and Cable. Start-ups can't afford to fight cable companies, especially when those cable companies are willing to risk everything to prevent competition.

(How many cable alternatives to @Home do you know? And how can @Home, with a monopoly on the cable market, AND all the cable provided for them, possibly be losing so much money that they're all but bankrupt and are at risk of having their shares pulled? Easy. They must have been dumping on the market, to loose billions of dollars in this sort of time-scale. This would explain why DSL providers have had to charge at a loss, to survive at all, and why they're now not surviving at all.)

If everyone charges at a loss, then the guy with the biggest starting balance wins. That, my dear Watson, is what an unregulated market does. This is why there are all sorts of struct rules to prevent that kind of misconduct.

So, you've a situation in which providers aren't providing, to try and kill competition, and where prices are designed to crush, not create.

The solution? "Liberals" aren't going to like this, but that's just too bad. This is the Dark Side of freedom, where "freedom" is used to crush and destroy, where "non-interference" is a licence to murder the market, in the hope that the murderer will somehow escape their own weapon of mass-destruction.

The only answer to the Dark Force is to counter it with the opposite. One option would be to enforce price-gouging legislation and to create legislation to make telecos legally accountable for ANY delay. (Connecting a wire takes 30 seconds. Adding an entry in a DSL router might take another 30. Tuning the circuit to the copper might take another minute or two, if automated. In short, if a teleco takes more than 2-3 minutes to fire up a DSL line, they're procrastinating.)

However, this requires that regulators and watch-dogs do their work. If they do, it's more by luck than skill. Regulators tend to be too political to be able to regulate.

This leaves the second option, which I prefer but which cheapskates will despise. The Government could always pay people who want DSL, to build the infrastructure themselves. Take the telecos and providers out of the loop, entirely. This would have the advantage that the "Last Mile" problem would effectively be resolved, with those interested in improving that gap having the means to do so.

In short, what I'm proposing here is for the Government to provide "restricted-use" funds to home-owners, which can be spent on copper & DSL, cable & cable modem, or any other broadband technology. But that's it. It can't be spent on hamburgers & booze, for example. But if you can fit it into the budget, whatever broadband you want is yours. The only catch is that it -is- yours. Nobody's running it for you. There's no tech support line. If you want to run the show, then you have to take the responsibility that goes with it.

If you did that, even on a limited scale, how long do you think the price-wars would last? How long could ANY company afford to block or harass, when customers suddenly become totally immune?

You might have gathered by now that I don't like the "free market". That's because its idea of "free" tends to be very, very selective. Free to the heaviest weights. Financial Sumo Wrestling is no way to run a business... ...unless, like Covad, Yahoo@Home, DEC, and numerous others, your strategy is to run it into the ground.

dsl thru your telco (none / 0) (#23)
by starbreeze on Wed Sep 05, 2001 at 09:37:15 AM EST

Most telcos hate dsl? My telco, North Pittsburgh Telephone, is the mother company of my ISP, Nauticom.

So that they don't have to list all of the available dsl providers in the area when queried about service, North Pittsburgh offers their own dsl called ConnectTime, which *is* Nauticom. It's $45/mo.

Sure they don't make money off the regular customers, but they do off of the businesses.

~~~~~~~~~
"There's something strangely musical about noise." ~Trent Reznor
[ Parent ]

Heh (2.66 / 3) (#17)
by trhurler on Tue Sep 04, 2001 at 12:27:47 PM EST

You see, the government created this mess. If they were to acknowledge it, someone might point out that, by perpetuating the phone monopoly they themselves created by force, they are and were responsible, and someone might lose a job! That can't happen.

Of course, the correct solution is just to buy your DSL from the people who have the damned lines and vote for politicians who actually understand how to fix the situation, instead of morons who will just create a different regulatory scheme that still perpetuates the same monopolies using the same force(hint: it is not economic might that has created the present situation. No company on the planet ever had enough money for that. The government did, though - and it took it by "force." Then, just to make sure nobody would compete, they essentially made it illegal to do so. Using someone else's physical facilities to offer "service" consisting of keeping your own paperwork is not 'competition' in anyone's mind except grandma who doesn't know any better and the morons who run our government.)

--
'God dammit, your posts make me hard.' --LilDebbie

Really though... (none / 0) (#18)
by PhillipW on Tue Sep 04, 2001 at 05:03:03 PM EST

Noone is saying the government created the mess. But if they are here to protect consumers they should do something. Not stand by with their thumbs in their ass. If they are just going to do that they may as well be gotten rid of.

-Phil
[ Parent ]
Oh and one more thing (none / 0) (#19)
by PhillipW on Tue Sep 04, 2001 at 05:06:46 PM EST

Of course, the correct solution is just to buy your DSL from the people who have the damned lines and vote for politicians who actually understand how to fix the situation...

I forgot to mention how unrealistically optimistic this was in the previous post.

-Phil
[ Parent ]
Correction..... (none / 0) (#26)
by Lelon on Thu Sep 06, 2001 at 11:05:50 AM EST

DirecTV claims to offer up to 1.5mpbs for $50/month. Pacbell says "384-1.5 mpbs" for $50/month (whatever the hell that means). I'm not sure if they've changed recently or if this was the status at the time of the article.


----
This sig is a work in progress.
DSL Companies fold, consumers suffer. Where was the government? | 26 comments (25 topical, 1 editorial, 0 hidden)
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