David Vs. The DSL Goliath
Dane Jasper is CEO of independent DSL provider Sonic.net
and President of the California ISP Association(CISPA
), which represents over 140 smaller ISPs. As such he has a unique view on what it's like to be an independent ISP in this age of super-incumbents (and the legislators and FCC who love them). We recently had a chance to talk with Dane about life as an indie ISP, the future of broadband, the effectiveness of the FCC, net-neutrality, and more.BBR
: A year or so ago, you joked that we may soon have to rename ourselves "SBCandComcastReports.com", even going so far as to offer a mock website
. What are your thoughts on the state of competition in the broadband industry now?DJ
: Competition in the broadband marketplace continues to narrow, which should be of concern to consumers. With the FCC rulings in place that push the concept of "multi-modal competition", I think we're headed toward monopoly and duopoly options in most markets.
The multi-modal concept suggests that consumers have lots of choices - pick from DSL, cable, satellite, BPL or wireless. So - five choices for broadband. But, satellite is very high latency, BPL is largely unproven, wireless is plagued by interference and high equipment cost, and DSL and cable are not available universally.
There are many locations in the US where consumers have zero broadband options, and the ironic thing is that one of the reasons cited is that telcos won't build broadband there unless they don't have to "compete" with ISPs that they had been required to sell wholesale access to. This is silly - if retail consumer DSL is profitable at a price of $X, wholesale access to other ISPs should be profitable at $X - 10%, and having five ISPs pushing the same broadband platform - and converting their existing customers, etc - has GOT to mean deeper penetration.BBR
: That said, how is Sonic doing?DJ
: Sonic.net is doing well with DSL broadband, and we really value our growing partnership with the new AT&T. We enjoyed growth of almost 50% in broadband clients last year, and are on track to do even better this year. However, we're one of only a few successful ISPs - Sonic.net is the third largest SBC-ASI partner in their entire 13 state region. Most ISPs are not able to be relevant in this arena.
One bright spot though has been our wholesale offering. Last September we began offering wholesale access to our ATM network to other ISPs, allowing them to leverage our huge economics of scale alongside SBC-ASI DSL loops. To date, 55 ISPs in California are now buying network capacity from us for this purpose, and it's pushed our DSL line count up quite a bit. Here's an example of an argument FOR continued competitive access to essential underlying facilities.BBR
: As AT&T's third largest customer, you've likely got some leverage other providers don't have. What are your thoughts on how the merger between AT&T and BellSouth will impact those smaller broadband providers, that may not have AT&T's attention?DJ
: Earlier this year, AT&T withdrew it's longstanding term pricing plan relationship for ISPs, and replaced it with a "cancel anytime" month to month relationship for all new ISPs. As a grandfathered ISP, and a large one, we've got a very good ongoing relationship, but new ISPs do not get the same advantages of those who signed up prior to this February. At this point, a new ISP who is not grandfathered and who begins selling broadband could really lose their ability to do so at any time. That means it's virtually impossible to build a long term business plan today, as the entire landscape could potentially change at any time.BBR
: What's the financial situation for these smaller providers?DJ
: I think smaller ISPs have already suffered huge, huge losses. Many that I talk to are hanging on by either specializing in some vertical market - wireless, network design, consulting, etc, or they're shrinking to minimal staff and just coasting. Some are just a shell - these are businesses which formerly were vibrant, growing companies, but without the ability to compete, they've really changed.BBR
: Has the FCC been an effective presence in creating broadband competition and increasing broadband penetration?DJ
: Of course not. The FCC's mandate today is to unleash the monopolies - the administration and legislature believes that by doing this, America will gain more access to technology and will be better prepared for the future economic environment. I think that this is naive at best - absent effective competition, where's the motivation for innovation?
The FCC in the last few years has gutted any real potential for competition, through the elimination of line-sharing for CLECs, the rollback of UNE-P, the decision on forbearance with regards to access by ISPs to fiber served - Lightspeed - and legacy DSLAM based DSL, and of course the contested decision with regards to competitive access to cable.BBR
: What should
the FCC be doing?DJ
: The FCC should not set aside essential facilities for the exclusive use of a single company. In all cases, the company which buried the wires should get a return on it's investment, and it should sell wholesale access to that essential facility to others. If one of those is an affiliated ISP, all the better - but there's no legitimate claim that there's a downside in wholesale access.BBR
: Zooming in a little, what's the specific competitive DSL environment in California?DJ
: Today SBC/Yahoo and Verizon have the vast majority of DSL clients, and Comcast has more cable customers than anyone else. There's virtually zero competitive access in cable, and DSL subscribers affiliated with ISPs other than those owned by the ILEC parent companies measure less than 10%. Covad has some facilities here, but note that they have some SBC ownership control today as a result of their bankruptcy exit.
NewEdge has some deployment, and ISPs have generally been positive the experience of working with them, but they have had some technical challenges - outages - in their network, plus their acquisition by Earthlink has sent a bit of a chill through the relationships.
On the upside, our wholesale platform in California has been really, really successful. AT&T is still partnering with ISPs, and we signed up most of them prior to the elimination of the term plan, so they've got some stability. Our coverage includes a huge chunk of the state, and we've got over a Gigabit of ATM deployed today, for use by Sonic.net and our other ISP partners. It's very exciting.BBR
: Can you explain to our readers what CISPA is, and what your organization does?DJ
: The California ISP Association is one of the largest and most effective trade associations in the industry. Like the Texas association (TISPA
, -Ed.), in the past CISPA has engaged in litigation at the public utilities commission level to obtain more reasonable treatment for ISPs by SBC - then Pacific Bell. And like the Florida association - now the F in FISPA stands for "Federated" as they accept ISPs from all states, we have vendor relationships and present a sort of buying block to vendors. CISPA has lobbied at the FCC and California state legislature, and has advocated for ISPs and consumers on a number of CPUC issues. Today, there are about 140 ISPs who are members of the association.BBR
: What are your thoughts on the net-neutrality debate?DJ
: It seems that all of the cable and telco execs got together for a luncheon and decided that they should begin talking about "free rides" and "fast lanes" and other similar rhetoric. One will say something that sounds totally unreasonable to consumers, then another will take a similar tack using different language.
Clearly, they all belong to the same trade associations, and they've worked together to help craft the legislation that they hope will allow them to hamstring their competitors. In particular, VoIP companies like Vonage may suffer badly - if telcos, cablecos and ISPs prioritize that traffic badly, the product can become marginally unusable, and it will die out, to be replaced by VoIP with QoS from the carrier.
I don't think anyone's getting a free ride - applications such as web browsing, file sharing and VoIP are the reason that consumers purchase broadband connections. To suggest that someone who is actually USING their Internet connection for something - no matter what it is - is getting a free ride is a bit odd. Those who create content and indexes - like Google - create unique value, and can use that to leverage advertising to eyeballs - that's their model. Those who build networks should be encouraged that customers want more, faster, etc - and sell it - not try to block those applications.BBR
: Can you explain for our readers the difference between SBC - - AT&T, and SBC ASI, the retail/wholesale relationship,and how they've changed as well as your relationship to them? Does ASI still exist?DJ
: Actually, ASI is still in the picture. The decision which required it's creation was overturned, but it was never re-integrated.
Basically, you've got an ILEC, and there can only be one of these, as they own the wires that are in the ground, which go to your house, etc. In California, this was Pacific Bell, it became SBC California, and today it's "AT&T, powered by SBC". Note that you'll see ALL of these things push toward a single name - AT&T - as time goes on.
Next up you have CLECs who do fast packet services. SBC-ASI is owned by AT&T, but this also includes NewEdge, Covad and a few others. These CLECs run DSLAMs, ATM networks, etc, and buy access to copper from the ILECs.
Finally, there are ISPs, who provide the next layer, Internet services such as access transport, email, hosting, etc. These include the newly renamed AT&T/Yahoo owned by AT&T - also known as SBC-IS, or "information services"
, Earthlink, DSLExtreme, Sonic.net, etc.BBR
: Can you briefly outline some of the disputes you've had with them?DJ
: In the past, we've had issues with unfair treatment in general, for
example PacBell line technicians suggesting to customers that they should have just purchased their Internet "right from the source" and skipped Sonic.net. This makes little sense, particularly as this was during a time when PacBell itself was unable to transport IP beyond the LATA boundary.
However, today those behaviors have ceased, and the relationship is a very good one. There remain however issues with costs and pricing. The aggressive introductory offers require huge deep pockets to keep up, and it's challenging. In the past, we used to buy wholesale access for about $44, when retail was $40 - that was really bad. Now, there's a tiny margin on most products, a couple percentage points - but the 6.0/768 product is actually upside-down today.BBR
: Speaking of aggressive intro offers; your reaction to AT&T's new 6Mbps 12 month deal for $30?DJ
: Our costs for this today are about $40 in payments to SBC-ASI, so there's no way to match this retail price point, particularly after you consider the cost of IP transport, support staff, general overhead, etc. I'm hoping to negotiate a lower wholesale cost.BBR
: With cable networks off-limits, and many next-gen VDSL and fiber deployments off-limits, what are Sonic's plans in the wireless space? How many wireless customers do you currently have? Any interest in Wimax?DJ
: We're currently serving almost 1000 customers on various wireless products, but I have to say, it's a tough set of products. It's very expensive to deploy on a large scale, for example statewide, and the cost per customer to deploy is very high. Where we might spend $50 or so on equipment for a DSL customer, a wireless CPE and such can easily run $200 or more. In addition, it generally requires that an installer visit the location, which is also very expensive.
Assuming that there's a setup when it's purchased, perhaps one repair during
the life of the product, and finally tear down when the customer relationship ends, you're looking at perhaps $200 or so in additional costs for staff, vehicles, insurance, etc.BBR
: Any interest in some of these emerging wireless technologies?DJ
: We're certainly continuing to explore new wireless technologies in hopes of finding one which is both stable, cost effective and fast. Non-line-of-sight is important, and if/when WiMax gets to that point, it could be interesting. NLOS means that you can use UPS for your installs - in other words, ship the gear, the customer puts it on their desk, and it works. There's no requirement for an outdoor antenna, cabling running up the side of the house, etc - so it cuts out the installer costs. WiFi delivers this today, but the range and interference concerns make it really tough.BBR
: I recall your presence on a spam-panel on the now defunct Screensavers program before TechTV was lobotomized. You were one of the only panelists who seemed to take a hard-line on all
spam. You're highly involved on this front - can you explain some of the things you've been doing?DJ
: Clearly, consumers hate spam - so to deliver an email box that they'll be satisfied with, we've got to block a lot of it. We continue to invest massive time and resources in the fight against spam, and it's certainly been appreciated by our customers. Today, we block about 75% of the inbound stream of messages as spam, meaning we junk over 1.5 Million messages a day. If we were to fail in our mission and these were let through, our customers would find their mailboxes far less useful. That said, this is a fight that all ISPs are constantly engaged in, and the sad thing is that this volume of junk to legitimate email is pretty typical.BBR
: Qwest's CTO recently stated
that estimates of p2p traffic eating up broadband networks were "overblown"
. Agree, or disagree - and can you provide estimates of how much bandwidth is eaten up on your network by p2p?DJ
: We're certainly seeing an increase in network utilization, and I believe that we experience this more than most as we've traditionally reached consumers who were more tech-savvy and demanding about their choice of Internet service provider. For example, if you want PPPoE and scripted support, go elsewhere - if you want static IPs, routed IPs, IPv6, etc, come here.
Looking at our own stats today, we're actually seeing a bit less p2p traffic than we are simple HTTP web browsing. So, in other words, it's not by any means a 'vast majority' of our traffic.BBR
: What's the latest and greatest for Sonic?DJ
: Our "Business T"
product. It's based upon a Cisco CPE we've put together that lets us gang multiple ADSL circuits which are provisioned on dedicated lines - not customer voice lines, as traditional DSL is, allowing us to deliver up to 24Mbps/3.0Mbps services to businesses using per-packet load balancing. The range of products is from "T1" - symmetrical 1.5Mbps at $299 up to 16xT1 downstream and 2xT1 upstream -24Mpbs/3Mbps - at $1499 a month.
This is cool because for the first time you can get T1 speeds and a service level agreement for less than three hundred bucks - and at the top end, it's more than half of a T3, for WAY less cost. Additionally, it can be deployed in just about three weeks, on copper, unlike traditional 45Mbps T3 which takes three to four months, and which requires fiber and thus a huge amount of physical space for the fiber cabinet, batteries, etc."Dane Jasper is CEO and co-founder of Sonic.net, and can be reached at email@example.com"