BabyBell Hell

SBC's aggressive push into Internet service hits a major digital speed bump.

November 2000By Comments

Speed is as good as gold in the internet economy. So last year, when San Antonio- based SBC Communications—the nation’s second-largest telecommunications company, whose holdings include Southwestern Bell—began offering high-speed Internet access to homes and businesses in Texas over ordinary copper phone lines, cyber-junkies rushed to get connected. The service is called DSL, which stands for “digital subscriber line.” It competes with cable and satellites to offer turbocharged Internet connections with high capacity, also known as bandwidth. And today’s Web sites and even e-mail gobble bandwidth with images, video clips, sound, and plug-ins that seem to take forever to download with a dial-up modem. On paper, SBC’s DSL product sounds like whiz-bang technology. Its minimum connection speed of 384 kilobits a second is up to fifty times as fast as the speed available using a 28.8K modem, and it can range up to four times that fast. A DSL line can carry voice and data at the same time, so users can talk on the phone while they’re surfing the Net. And the cost is comparable to cable-modem service—$39.95 to $59.95 a month (the more expensive offering includes a Compaq Presario computer equipped with a DSL modem). SBC has so aggressively marketed DSL that it now has more subscribers than any other Bell company. Analysts say the number is at least 500,000 (that’s in all the states that SBC serves through its subsidiaries: Southwestern Bell, Pacific Bell, Ameritech, Southern New England Telecom, and Nevada Bell). The numbers are sure to climb—in September SBC won regulatory approval to expand DSL service in a breathtakingly ambitious plan dubbed Project Pronto. Its goal: to become the nation’s single largest provider of DSL and advanced broadband services.Sounds like a big hit, right? More like hit and miss. In Texas, one of SBC’s biggest DSL markets, the ballyhooed new high-speed on-ramp to the Information Superhighway took a detour onto a side street filled with digital speed bumps. Frustrated customers have complained of terrible customer service, inadequate technical support, long waits for installation, and misrepresentation of DSL speeds. In August a group of consumers filed a lawsuit against SBC and its subsidiaries over DSL service, alleging fraud, theft, and breach of contract, among other things. The suit, filed in a Nueces County district court in Corpus Christi, seeks class-action status. Thomas McLaughlin, the lead plaintiff, is the president of NetHelp Solutions in Houston, an advanced technical support house that specializes in communications networks. In the summer of 1999 McLaughlin began subscribing to Southwestern Bell’s DSL service partly because he wanted to improve speeds to download e-mail and newsgroups, which are discussion forums hosted on the Usenet network. His problems began almost immediately. McLaughlin says it took two weeks to register an e-mail account, and he spent six to eight hours on the phone trying to get help from Southwestern Bell. Once he did get hooked up, his first six months were happy, he says. But then in May the company throttled back the minimum DSL download speed from 384 kilobits a second to 128 kilobits a second when users connect to newsgroups. That, McLaughlin and the other three plaintiffs say, is wrong because SBC is “intentionally withholding two thirds of the access speed customers have been promised and for which they have paid.” (SBC counters that, since only about 1 percent of its Internet customers use newsgroups, it capped speeds for accessing newsgroups at 128 kilobits per second to help balance the load on its Internet services.)

McLaughlin’s complaints go on. He says he received “horrible, nightmare” customer service and that SBC’s technical support was so inept that he had to help the DSL installer. “I supplied the cable. I supplied the hardware. I supplied the staple gun. I supplied the ladder,” he says. “I ran the cable. I terminated the cable. I tested the cable. The guy watched.” He and the other plaintiffs also say that SBC does not, as its advertisements and product promotions claim, provide a high-speed Internet connection that is “always on.” Instead, DSL service is disconnected after a user has been idle for a while, according to the suit, saving SBC “valuable bandwidth” it can then resell to other customers.

Lots of criticism has come from the other end of the line too—from competitors who want to provide DSL service to their own customers but need cooperation from SBC to do so. In a move to make DSL more easily available, the FCC ruled last year that major regional phone companies must share their lines with data carriers. That has opened up competition in DSL and allowed the rise of alternative wholesalers like Covad Communications, Rhythms NetConnections, and NorthPoint Communications. Many Internet users already get access through Internet service providers, or ISPs, and ISPs can offer DSL service by getting it through Covad, Southwestern Bell, or some other supplier and reselling it. But some ISPs that partnered with Southwestern Bell recount horror stories about foot-dragging on their installation orders, "slamming''—switching an ISP's customers to SBC's own Internet services company—and trying to squeeze them out of the market by charging anti-competitive prices for DSL service. The fight got so nasty that the Texas Internet Service Providers Association filed a complaint with the Public Utility Commission. In June SBC and the organization reached an agreement that's being closely monitored by the Public Utility Commission. As part of the accord, SBC set up a toll-free telephone number to monitor complaints from ISPs. By late September, it had received 259, most relating to installation problems. Though a utility commission memo noted that SBC was doing a better job with its installations, it also pointed out that only 59 percent of DSL orders from ISPs outside Southwestern Bell were installed within twenty days—not exactly something to crow about. "We've had orders sitting since May that haven't been installed," says Dewey Coffman, the vice president of marketing for Jump.Net, an Austin ISP that was one of the first to offer DSL service in Texas—and with Southwestern Bell as one of its partners. "They continue to lose orders. They continue to come up with new problems. It's the worst I've seen in the DSL world." Jump.Net is working with other DSL providers, but it doesn't have much choice but to keep working with Southwestern Bell too. "They own the copper [the lines to customers' homes and businesses], so you have to deal with them," Coffman says.

SBC acknowledges that it has had problems earlier this year with DSL service, but the company argues that it has now fixed most of them and that the majority of its customers are satisfied. "We've had issues and hiccups along the way, but we definitely feel like we stepped up to the plate and addressed them," says SBC spokeswoman Kristen Hendrix. For instance, in recent months Advanced Solutions, Inc., SBC's affiliate that handles DSL installations, has hired 1,200 more technicians and provided them with more training. Now customers generally can get DSL service installed in fifteen to twenty days instead of weeks. This summer SBC began offering a do-it-yourself DSL hookup so customers can install the required equipment themselves—a DSL modem, software, and a special filter for phone jacks. About 70 percent of SBC's DSL customers have used the self-installed kits, which has cut down on installation waiting periods, Hendrix says. SBC also added hundreds of new customer-service representatives to cut waits for the help desk down to a few minutes. And it has slashed the wholesale prices it charges ISPs and taken measures to prevent slamming. While ISPs still have concerns, "it's a whole lot better now and it's getting better every day," says David Robertson, the president of the Texas Internet Service Providers Association.

SBC has every incentive to make DSL a star. It badly wants to become a major Internet player and transform itself into a company designed not around voice but data. Even when SBC won approval this summer from the Federal Communications Commission to enter the long distance market in Texas, it wasn't after just voice customers. "Long distance rounds out our full-service bundles and is key to capitalizing on our company's single biggest growth opportunity and new core business: data," Edward E. Whitacre, Jr., SBC's chairman and chief executive officer, said after the FCC's decision. With Internet service, local phone service, long distance, and its push into e-commerce services for business customers, SBC has fashioned itself into a full-service communications company. But so have others, and competition is fierce. Upstarts like CapRock Communications and Birch Telecom (whose billboards poke fun at Southwestern Bell's image as a big, uncaring telephone company) have been making inroads into SBC's territory. And Road Runner, a joint venture that includes Time Warner and Compaq Computer, has had success marketing a rival Internet-access technology in Texas using cable lines (in August SBC quietly settled a complaint against Time Warner after accusing it of using anti-competitive tactics in the fight for Internet-access customers).

The question is whether SBC's management, which still carries vestiges of the hidebound, captive-market culture of a local Bell company, is capable of executing its own ambitious plans. The company has certainly struggled to keep up with the brisk demand for DSL. But in the long run, analysts say, the Bell companies are likely to dominate DSL, and SBC already is the clear leader in the market. "You're going to see increased reliance on this technology," says Mike Lowe, a senior analyst with Cahners In-Stat Group, a high-tech market research firm, "especially when you're able to begin delivering services beyond just Internet access, like streaming video." But the learning curve has been steep. And SBC has its work cut out for it as it spends billions to build a fast track to the Internet.

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