Bpol 579e ecommerce: Competing on the Internet Spring 1999 Asymmetric Digital Subscriber Lines



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BPOL 579E

Ecommerce: Competing on the Internet

Spring 1999

Asymmetric Digital Subscriber Lines


James J. Massey

Eric Sahlin

Patrick Toulouse


ADSL: Origins and Evolution

As the Internet rapidly evolves into a major form of communication and commerce for the next century, bandwidth limitations have been recognized as the Internet's major roadblock.


There's one big problem -- telecommunications bandwidth"
--Andy Grove, Intel
"Bandwidth bottleneck. No question, that's the biggest obstacle."
--Bill Gates, Microsoft (from June 1996 Fortune interview)
ADSL (Asymmetric Digital Subscriber Line) provides telephone companies with a solution to greatly expand the Internets bandwidth to both home and corporate users. ADSL's most intriguing feature is that it uses existing twisted-pair copper telephone lines to reach data transfer rates up to 8 Mbps (Mega-bits per second) downstream and 640 Kbps (kilo-bits per second) upstream (Exhibit 1). Industry experts indicate that only about 2 Mbps downstream rates are needed for end users to view real time video at movie-like quality. The asymmetry of ADSL (the ratio of upstream bandwidth to downstream bandwidth is approximately 1:10) makes ADSL ideal for web browsing applications where downstream content generally requires a higher bandwidth than the upstream transfer of data.
ADSL was developed in 1989 from research done by Bellcore. Bellcore's inspiration to develop ADSL came from the vision of Video on Demand (VOD) where downstream speeds of 1.5 Mbps were sufficient for MPEG movies. The market demand for VOD never really materialized and it wasn't until the Internet picked up steam that ADSL started to become popular.
Since the telephone network was originally designed to carry voice signals in analog form and not digital form, sophisticated line-coding1 was required. In 1987, Stanford Electrical Engineering Professor John M. Cioffi, developed DMT (Discrete Multi-Tone) line coding techniques as a result from his research. Professor Cioffi patented DMT technology and later founded Amati Corporation in 1992. At Amati, he developed the first ADSL modem product called Prelude. The Prelude used off the shelf parts and was evaluated by numerous Telcos throughout the world. Amati would later leverage it's experience testing the Prelude to release a series of their Overture ADSL modems in 1996.
To make matters difficult for mass deployment of ADSL, as with any emerging computer communications standard, there are different (and incompatible) line coding techniques. As previously stated, there are two major line codes: carrierless amplitude modulation (CAP) and discrete multitone (DMT). CAP is supported by AT&T/Paradyne and initially reached speeds up to 1.5 Mbps. This scheme uses frequency modulation techniques that send a single signal down the wire; cable TV companies have been using these techniques for years.

Bellcore evaluated the various line-coding options for ADSL and decided DMT was the most robust based mainly on the extensive testing performed by Amati. Currently, the standards bodies ANSI (USA), ETSI (Europe) have adopted DMT as the line code of choice.



The Technology

The standard voiceband modem technology can be described as a device that allows a user's PC and a web server to communicate. Voiceband modems carry digital data that originates in the user's PC (or the web server) and is sent across the PSTN. Since the PSTN was designed to carry analog data, the modem must first convert the digital data to analog before sending it over the PSTN. The receiving modem converts the analog signal back into digital data that can then be sent to the web server.


The ability of ADSL to achieve higher data transfer rates than standard voiceband modems, requires that it utilize frequencies beyond the voice pass band (0 to 4 KHz). The voice pass band is used by the Public Switched Telephone Network (PSTN) to deliver voice traffic. Since 64 Kbps is sufficient to accurately reproduce human voice, PSTN only requires the 4 kHz of bandwidth. Twisted pair plain old telephone wire is capable of up to 1 MHz of bandwidth and thus there is significant bandwidth capability.
DMT divides the total bandwidth into 256 channels (of 4 kHz apiece) that can handle much faster speeds than CAP. DMT equipment divides the data signal into smaller channels ("sub-channels") so that each channel carries a small amount of data (Exhibit 2). The overall data stream is reassembled at the subscriber's end. DMT can regulate which channels are to be used based on external interference in the data path2. As an example, an AM radio station causing radio frequency interference in a particular sub-channel can cause that sub-channel to be unused. This factor is the key to DMT's outstanding performance and robustness to line impairments.
To get full utilization of the small PSTN copper telephone wire, sophisticated algorithms and fast instruction speed Digital Signal processing is required. A dynamic (constantly changing) noise cancellation scheme must also be incorporated to deal with changing noise problems and line impairments as they occur.

Digital Signal Processing and Modem Evolution

Digital signal processing consists of digitizing an analog signal and processing it in the digital domain, then changing it back into the analog domain. Digital Signal Processors are the "brains" of high-speed modems. The availability of high instruction speed DSPs enable modem engineers to economically implement mathematical algorithms to improve performance. DSPs were the key factors is enabling voiceband modems to achieve the V.34 (33.6 Kbps) and V.90 (56 Kbps) speeds today. Mathematical functions (algorithms) that implement the protocols in accordance with standards and process the analog data signal (Fast Fourier Transforms) were originally executed in modem software. As modems developed in complexity and speed, it became necessary to implement the algorithms in DSPs.

Modern programmable DSPs are capable of several hundred million instructions per second (MIPs) that allow modems to achieve high data rates even under various noisy line conditions. This enables software developers to write mathematically intensive programs to give ADSL modems their flexibility. Theses high speed DSPs are the important factor in giving DMT based modems their multiple sub-channel and channel modulation capabilities.
Comparison of ADSL and Competing Technologies
Primarily three types of data transmission technology are competing for consumer and business customers. Twisted-pair copper wire is what telephone systems use and what consumers and businesses currently use for Internet access. ADSL uses existing twisted pair copper wire. Wireless technology uses satellites and radio waves as its transmission medium. The third technology is based on existing coaxial cable, as well as the upgraded version of standard cable, which is called hybrid fiber coaxial cable (“HFC”).
A. Twisted-Pair Copper Wire
Twisted pair copper wire has an advantage over other media due to its existing installed base of nearly 750 million telephone connections. Until recently however, telephone wire had serious bandwidth limitations. This has changed with the development of digital technology, such as ADSL, that allows greatly increased bandwidth.
Conventional Analog or Voice Band Modems are relatively inexpensive ($50-$200) and can transmit voice and data at transmission rates of up to 56 Kbps virtually anywhere that a telephone line exits. The relatively slow transmission rate makes Voice Band Modems impractical for interactive video and the transfer of large quantities of data.

Integrated Services Digital Network (“ISDN”) technology allows voice and data transmission to run concurrently on separate bands within the same wire at transmission rates of up to 160Kbps. This means that a continual network connection can be maintained in tandem with telephone service. ISDN service however requires that telephone companies install special equipment to service local areas. This has not yet been done in many areas. In addition, installation of ISDN equipment currently costs in the range of $300-$400 and monthly fees for the service include not only a hefty charge for the ISDN line itself, but also significant usage charges.


T1 telephone service provides even greater speed than ISDN, with transmission rates up to 1.544 Mbps. Installation and monthly service charges however are significantly higher than those charged for ISDN and T1 service requires an additional, dedicated telephone line.
A more advanced version of DSL called Very High Data Rate Digital Subscriber Line (“VDSL”) may soon offer downstream transmission rates of 13 to 52 Mbps and upstream rates of 1.5 to 2.3 Mbps. ADSL requires a special modem at the user’s location and other specialized hardware. Like ISDN and T1, ADSL allows telephone service and data transmission to run concurrently, eliminating the need for a dedicated telephone line. ADSL’s greater downstream transmission rate enables telephone companies to provide both high quality interactive video (such as movies on demand, video games, and delayed television segments) and high speed data communications (including internet access, remote LAN access for telecommuting, and specialized network access). Also, unlike cable services in which cable access is shared among many users, ADSL data travels along the customer’s own private line. This reduces security concerns, which plague cable operators. In addition, in contrast to cable, ADSL transmission speeds are not affected by other users going on line.
B. Wireless Communications
Direct Broadcast Satellite (“DBS”) offers a wireless alternative to twisted pair copper wire and cable modem service. Many companies are making billions of dollars in investments in wireless infrastructure and some analysts predict that it will eventually overtake physical media as a communication standard. This is due to the speed at which upgrades can be made in wireless technology. While cable and phone lines require costly, time-consuming infrastructure upgrades, wireless systems can saturate an area with limited infrastructure. However, while DBS enjoys a rapid Mbps (in the 19 Mbps range) downstream transmission rate, it relies on traditional analog modems with speeds of 56 Kbps to create an upstream path and its service fees will likely be significantly higher than high speed services based on either existing telephone wire or cable systems.
C. Cable Communications
Though it’s not as ubiquitous as telephone wire, cable modem service is accessible to a large number of households and businesses throughout the world. In the U.S. for example, cable modem service is available to over 8 million homes and it is estimated that the number of cable

modem subscribers will increase from approximately 1 million at the end of 1998 to over 4 million by the year 2000. The success of cable modem technology as a medium for the high speed transmission of data and video depends heavily on whether cable companies are willing to spend the billions of dollars necessary to upgrade their systems from standard coaxial cable to hybrid fiber coaxial (“HFC”) cable. HFC cable can transmit data at up to 45 Mbps, but the cost of HFC upgrades is expected to be roughly $300 per home (depending on the level of market penetration). Also, compared to other forms of high-speed data transfer, cable is relatively inexpensive. Cable companies generally buy all their equipment and lease modems to customers for under $50 per month. In addition, cable requires no additional phone line and maintains a continuous connection, eliminating log-on time. Cable modem technology however has serious security and transmission speed degradation problems because cable lines are not dedicated, but are share among many users. There are also concerns associated with the fact that uniform operating standards for the data over cable industry are just now being considered and adopted. The recent adoption of the Multimedia Communications Network Standards (“MCNS”) and the proposed adoption of the Data Over Cable Interface Specification (“DOCSIS”) should reduce these risks.



Companies involved in the ADSL Industry

Because there are numerous companies with the capability to design and manufacture DSPs, the ADSL modem chipset market has become very competitive. Amati, who originally patented the standard DMT line coding technique, licensed the technology to several chip manufacturers including Motorola. Amati was acquired in 1996 by Texas Instruments for $300 million dollars. Recognizing the demand for increased bandwidth and the attractiveness of ADSL satisfying that demand, major players in the Computer industry have been acquiring ADSL companies. Microsoft, Cisco Systems, Texas Instruments, Motorola and Lucent have all made bets on ADSL and have either acquired ADSL companies, invested in them or formed major alliances.


The number of companies involved in the manufacture and development of ADSL equipment is rapidly expanding. Listed below are some of the companies that manufacture ADSL chipsets, modems and equipment (Multiplexers, switches, DSLAMs) for regional bell operating companies and network infrastructure suppliers.


  • Westell Technologies (Originally tried to merge with Amati. After the merger was announced, Texas Instruments acquired Amati. Partnership with Lucent. Has an alliance with Microsoft for initial ADSL trials. Manufactures ADSL modems and Equipment)

  • Pairgain (ADSL Modem and equipment manufacturer)

  • Alcatel (European ADSL modem and equipment manufaturer)

  • Orckit (Israeli modem and equipment manufacturer)

  • Cisco Systems (Purchased private ADSL modem/equipment producer, Netspeed)

  • NorthPoint Communications (Partnership with and equity investment from Microsoft)

  • AWARE (Licensed DMT from Amati and manufactures ADSL chipsets)

  • Motorola (Licensed DMT from Amati and produces ADSL chipsets)

  • Texas Instruments (Purchased Amati, and manufactures ADSL chipsets)

Industies Impacted By ADSL

Many applications envisioned for ADSL involve interactive multimedia applications. ADSL enables two general types of applications – interactive video and high-speed data communications.


Data access


  • Remote CD-ROMs

  • Remote access to Corporate LANs

ADSL might provide the final push to allowing individuals to telecommute. Workers could remotely log into their corporate accounts, access their corporate LANs to retrieve information more quickly, and save it back to their personal accounts. In a world of globalization, this feature would seem invaluable. The importance of client-server computers to corporation effectiveness will become even greater.

Video on Demand


  • Movies

  • Television

The impact of this feature could be staggering to the film and entertainment industry. Nothing will replace the experience of going to the movies. However, the medium by which films are distributed could be changed. Instead of leasing a reel of film, theaters may take a direct feed from a movie warehouse. Home entertainment could follow a similar path. Instead of going to the local video store for a VCR tape or DVD, a movie enthusiast could access a movie warehouse (or a Universal Studio website). It would be possible to search every film ever made by title, actors/actresses, topic, category, date filmed, etc. An individual could select the one title that matched their current mood and tastes.
On-line television would eliminate the need for programming. A viewer could watch “what they want, when they want it”, rather than enduring network schedules. Selections could be made from an on-line library of television programs. Additionally, content could be downloaded and edited. A recent report stated that over 22 minutes of an hour television is now dedicated to advertising. Ultimately, the traditional 30-second commercial could be deleted. I would think this could dramatically change the face of the advertising industry.

Other


  • Multi-player Interactive Games

The PC gaming industry continues to grow. Computer gaming already poses a threat to the likes of Nintendo, Sony Playstation, and Sega. ADSL provides the horsepower to play real time adventures with stunning graphics against opponents half way around the world.


  • Educational Programming / Distance Learning

Trends in education appear to be moving towards making it more convenient to attend your favorite institution. The advent of distance learning is one such initiative. Many programs also offer video taped and/or live broadcast of classroom lectures. ADSL would open the door to the next level. Students at home could virtually interact with the classroom both visually and through discussion simultaneously. Theoretically, someone could live in Brussels, attend the University of Washington, and actually participate in daily classroom discussions.


  • Telecommunication Services / Telephones / Video Conferencing

ADSL could be the breakthrough the telecom industry has needed to make video conferencing affordable to everyone. The question is do they want to make it available to everyone? In addition to allowing simultaneous voice data and video transmission, ADSL provides the necessary bandwidth to eliminate the jerkiness of current technology.


Of course, no discussion of a new Internet technology would be complete without addressing its potential impact on Ecommerce. Widespread implementation of ADSL would drastically change the ability of Ecommerce sites to flaunt their wears. Websites could take on much more entertaining functionality. They could introduce more graphics including 3D imaging, movie snippets, and traditional “television” media advertising strategies. The shopping “experience” would become much more enjoyable and interactive.

Outlook For The Future

ADSL has a strong future due to three key reasons:



  1. The additional speed available from ADSL

  2. Its ability to share an existing telephone line with a standard voice line

  3. ADSL networks (unlike ISDN) bypasses the telephone switches that today are overloaded with data traffic.

Three interrelated issues facing the industry emerge: (1) the technology must perform to expectations; (2) the value proposition must be embraced by the end-user; and (3) the speed of deployment (i.e., first mover advantage) is somewhat critical. Some implementation problems exist with crosstalk, distance limitations, and the likelihood that a good portion of the copper in the ground is not “ADSL ready” (i.e., bridge taps, damage, or wetness). If such problems are widespread, the costs of implementation rise. ADSL is only feasible if it can deliver desired services at a reasonable price point. ADSL is not an end in itself, but rather an enabling technology that ultimately is not much more than an “enhanced” phone line.


Future availability of ASDL will depend on its deployment by local telephone companies. Factors that greatly affect ADSL deployment include the:

  • Level of installed ISDN base

  • Existence of cable competition

  • State of existing local loop architecture

  • Regulatory requirements regarding local loop unbundling

  • Level of Internet access

  • Content provision

  • Pricing

  • Individual Telco strategy

In most industrialized markets, ADSL deployment has been limited to trials. However, ADSL deployment is expected to increase rapidly in the next several years. Estimates range from 500K to 20M subscribers by the year 2001.



Transmission Technology Options



Description


Transmission Speed


Installation Charges


Service Charges


Analog Dial Access


28.8-56 Kbps


$50-200 (modem) +

$30 line fee

$20/month unlimited


ISDN Digital Dial Access


160 Kbps

$330 (modem) +

$220 ISDN line


$35/month plus usage


T1 Dedicated Leased Line


1.544 Mbps


up to $1,000


$500/month


ADSL

1.5-9.0 Mbps (down)

16-640 Kbps (up)


Competitive with Cable modem prices


$60-$190/month depending on transmission speed


Wireless

Range of Mbps (down)

56 Kbps (up)


Several Hundred Dollars on up for Satellite Dish


Monthly charge depending upon service. Est. $50-$150


Cable Modem


10 Mbps (coaxial)

45 Mbps (HFC)

$150



$34.95/month unlimited

Adapted from Information provided by Pacific Bell and Robertson, Stephens & Company

1 The process of encoding a digital signal into an analog signal that represents and conveys the information over an analog channel is called line-coding.

2 As a DMT system operates, the quality of each subchannel is monitored constantly, and adjustments are made to the bit distribution to maintain the desired performance. Consequently, if the quality of a subchannel degrades to the point where the error performance of the system is compromised, one or more bits on that subchannel are automatically moved to a subchannel that can support additional bits. In this manner, standard-compliant DMT systems adapt to changing channel and noise characteristics, resulting in high-performance, robust communications over twisted pair lines.


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