DSL debate heats up for service providers: FCC's BellSouth ruling highlights the issue of why some carriers include voice and others don't

The problem was that the headlines weren't exactly right. True, the FCC's decision invalidated state requirements that BellSouth supply DSL service to users who didn't also buy its phone service. But the ruling wasn't about true "naked" DSL, which travels over lines that carry no voice at all. It was about DSL over UNE, which from a regulatory and perhaps even emotional standpoint is quite different.

Still, from a commercial standpoint, the two are close enough that the entire episode raises an interesting question: Why do some service providers like BellSouth try to avoid delivering DSL without voice, while others go out of their way to do so?

DSL IN DEMAND

Some executives, like Bruce Chatterley, CEO of broadband Internet service provider Speakeasy, think it's a hot business. "The argument historically is that there's a subsidy between voice and data," he says. "But we've been selling DSL [alone] extremely successfully." Speakeasy introduced naked DSL, which it also offers with the option of VoIP phone service, six months ago and already has some 10,000 customers for it, according to Chatterley. In fact, the naked version of DSL "now represents about 70% of our new DSL accounts," he says.

The dispute started when a handful of southern states decided it was anti-competitive of BellSouth to refuse to provide its DSL service to customers who were getting local phone service from its competitors who were leasing the ILEC's copper lines under UNE rules. The states insisted that it provide the service, and in December 2003, BellSouth filed a request for the FCC to preempt the state requirements on several grounds. When the agency ruled in its favor in late March of this year, BellSouth lauded the decision as "clearing out regulatory underbrush" and affirming a single national broadband policy.

So now BellSouth doesn't have to provide standalone DSL of any sort. And the next question is why it wouldn't want to.

BellSouth's argument in its complaint was that the states' actions conflicted with federal rules and authority involving unbundling in general and DSL in particular, and amounted to unlawful regulation of information services. And the FCC's decision in fact found that the state regulations forcing BellSouth to offer DSL over UNE lines were in conflict with federal unbundling rules and policies.

Another factor, according to a spokesman, was that price competition from cable broadband providers made DSL insufficiently profitable to provide without phone service. That doesn't make sense to some observers.

"I'm not sure what was behind BellSouth's pushing this," says Ron Cowles, a Gartner analyst. "Delivery of a portion of the service to a customer is better than not delivering any part of it."

Charles Golvin, a Forrester Research analyst, also is unsure. "I think they're missing the boat by not choosing to take this path on their own," he says.

Besides Speakeasy, a couple of telcos consider standalone DSL worthy. Qwest, for one, has been doing so since February of last year. Verizon also plans to offer it.