A mere two days after Peter Friedrich took over as the interim general manager of the San Diego Repertory Theatre, the company lost its Internet connection to the outside world. Not only did this catastrophic event mean the theater company couldn’t communicate via e-mail, but its e-commerce ticket sales took a hit as well.

“It was the same day as the first performance of a world premiere play and a week later we had another world premiere,” says Friedrich, a small amount of panic left in his voice. “People were coming to the box office expecting the tickets they ordered online. It was unspeakably confusing. I don’t even want to think about how it affected our bottom line.”

Like many San Diego businesses, the theater got trapped in the black hole created when DSL wholesaler NorthPoint closed its virtual doors in late March. It took more than a month, and the volunteer services of Home 2 Office Computing Solutions, to get it back online.

“For many businesses, if their Internet connection is down, the whole business is down,” notes Morgan Davis, senior director of operations for CTSNet, a San Diego-based Internet service provider that offered NorthPoint to clients as a broadband connection. “And every minute they’re down, it’s money they’re not making.”

Industry experts had predicted this would be the year that DSL (digital subscriber line) would break out of the broadband pack. The DSL Forum estimates there are 2.5 million DSL subscribers already in the United States.

DSL wholesaler SBC says it’s installing 3,000 to 4,000 new lines a day and AOL reports that it receives more than 5,000 orders per week for the speedy service. Predictions put the total number of American DSL users at 17 million in four years.

After three years on the mass market, business consumers are catching on that DSL offers broadband access at a fraction of the cost of a dedicated line and with up to 200 times the speed of a dial-up modem, reports Pacific Bell, one of San Diego’s largest DSL providers. In fact, the only real competition to DSL in the business market is cable, which outnumbers DSL two to one in customers, but with a far greater concentration in the residential sector than the office environment. (Interestingly enough, many users got hooked on DSL’s speed at home first, then added it to their office.)

Until last year, many ISPs have concentrated on selling DSL to small and medium-sized businesses. And for this marketplace, the fit couldn’t be more ideal.

A Ready Market

Industry analyst Garner Dataquest reports that 6 million people in the United States already are using broadband connections in the workplace or home. That number is expected to skyrocket to 28 million by 2002.

When it comes to broadband, only three major commercially viable choices exist — a dedicated (or T-1) line, cable or the copper wire-based DSL. For several significant reasons, DSL appeals strongly to small and medium-sized businesses.

For instance, there’s no time-consuming dial up since the connection is always on. It also is excellent for networking a small group of computers (30 or fewer) with a virtual private network, or VPN. But speed is usually the first thing that attracts customers. DSL is capable of speeds ranging from 384 kilobits to 1.5 megabits per second, depending on the type of DSL equipment employed.

“Now that broadband has taken hold, people want high speed,” says Brian Brokowski, spokesperson for Pacific Bell in San Diego, which offers DSL through SBC, its parent company. “And once people get used to that speed, they can’t go back.”

These days, instant messaging, data-heavy file sharing and graphic-rich Web sites are the business norm. Less time to send an e-mail, conduct electronic research or relay a file to a client means more money in the bank. While cable also offers high speeds, it shares a pipeline with more than one subscriber and the more subscribers, the slower the pipeline. At peak hours, its speed, which can be faster upstream than DSL, can slow to a crawl.

When choosing between a dedicated line and DSL, cost is usually a major factor. A T-1 line can cost up to $1,000 or more per month. DSL is more in the $100 to $250 range per month (after installation). That’s quite a significant savings for a technology that is close to the same speed. Add the ability of DSL to split a line so that it can handle both data and voice at the same time (only on asymmetric DSL or ADSL, which doesn’t need a PBX multi-line splitter), and a business can realize major savings.

“This aspect really appeals to businesses,” says Brokowski. “Especially in this economy, businesses have to look at what solutions make financial sense. It’s a way to best manage a business’ resources.”

Some drawbacks are inherent to the DSL technology, primarily involving reliability, which is affected by loop length. To service a neighborhood, a provider must install a digital subscriber line access multiplier at the local telephone switching office. Each access multiplier services 250 lines (more DSLAMs can be added), all of which must be 15,000 to 18,000 feet from the local office. (Interestingly enough, Asia and Europe are better wired for DSL because they have shorter loop lengths. In fact, there are almost as many DSL users in Korea as there are in the United States.)

Wholesalers such as Verizon Communications, Qwest, Rhythms and SBC, have agreements with the competitive local exchange carriers (CLECs) to put their equipment in the local carrier’s switching office. They then resell the line to ISPs, who market the connection to consumers.

Not every location is DSL ready. McKinsey Quarterly reports that only 40 percent of phones in the United States are ready for DSL as compared to 58 percent for cable. By the end of 2004, both should be neck and neck at 75 percent capable.

If 100 percent reliability is essential to a business’ operation, Davis of CTSNet recommends selecting a dedicated line. “A DSL server is problematic compared to a T-1,” he says. “That’s why, if the Internet is mission critical for a business, I advise them to use a dedicated line. I ask them, ‘can you afford a week or two of down time?’ If not, a T-1 will cost you more, but you get what you pay for. Many of the businesses that are now caught in the NorthPoint situation were penny-wise and pound-foolish for going with DSL.”

What Went Wrong

It didn’t help that NorthPoint, Covad Communications and Rhythms NetConnections, three of the major DSL wholesalers, all reported losses in 2001, blaming the bankruptcy of several ISPs. But there’s more to the story than that.

Copper Mountain Networks, a San Diego-based leader in DSL equipment, also got caught in the financial crunch. “What we saw were wholesalers spending too much — their expenditures were ahead of service revenues,” notes Bryan Long, vice president of marketing for Copper Mountain. “Too many players got in the game. Then that spigot of spending got cut off. Our revenues went from $90 million in a quarter to $8 million in a quarter. That’s a heck of a decline.”

Davis has another take on the issue. “To get a good price from the wholesaler, ISPs had to guarantee a number of lines it would sell,” he says, blaming the dot-com, short-term get-rich-quick mentality of some wholesalers and ISPs. “If the ISPs didn’t make their quotas, they were penalized by increased costs, more than they charged their customers. When the ISP couldn’t pay its bills, it went out of business, which means businesses like NorthPoint couldn’t pay its bills.”

Can DSL Recover?

“If NorthPoint had only stuck to its original business plan and rolled out more slowly, it would have been fine,” says Long. “Wholesalers are under considerable pressure to expand their footprint as fast as possible to compete. But I think the demand for DSL is still very strong. In a couple of quarters, growth will catch up and proceed in a more rational, orderly way — in the traditional way of doing business.”

Other companies are eager to position themselves as steady providers. In San Diego, many consumers switched over to Rhythms NetConnections. “Rhythms welcomes the opportunity to work with service providers looking to move their business to a more stable and financially stronger DSL provider,” says Steve Stringer, president and COO of Rhythms. Founded in San Diego and then moved to Englewood, Colo., Rhythms has been quick to point out that it has solid funding through January 2002 and expects revenue to exceed $125 million for 2001.

While Rhythms was a leader in bringing DSL to the business community, the technology’s shortcomings also has bit veteran telecom players.

“We’re looking at some shake-up in the industry,” says Brokowski, who admits that last year PacBell suffered some image damage when residential customers experienced problems with DSL connections. “But the bottom line is that DSL remains the largest growth initiative for PacBell. There’s quite a demand for DSL and we’re committed to filling that demand.”

So even with the NorthPoint disaster, public enthusiasm for DSL doesn’t appear too badly shaken. When the San Diego Repertory Theatre shifted its connection to another server, it once again chose DSL.

Ron McNeill, president of McNeill Consulting in Mission Valley, also selected a DSL provider when hit by the NorthPoint shutdown. As a computer software consultant, McNeill had many clients asking him for advice on the subject of how not to get caught in the same jam when choosing a DSL provider.

“I tell them to get references from other businesses first,” McNeill recommends. “Find out who has the best customer service. And then have a backup. Redundancy is a hassle, but it’s just too important, too vital to be connected to the rest of the world.”

It may take a while for business users to forget the trauma of being without the Internet for a few weeks, but there are many emerging DSL services that will add to its value, such as Voice Over DSL, the ability to self-install modems (bringing costs down) and better equipment that makes loops reach greater distances. But these may have to compete with up-and-coming horizon technologies such as fiber direct and fixed and mobile wireless hookup.

Still, industry experts have no doubt that, as users’ need for speed escalates, DSL will survive this black eye and continue its amazing growth spurt.

“We’ve only tapped 5 percent of the lines that will be DSL, so there’s still very good potential in this market,” says Long of Copper Mountain. “I think in five years, we’ll remember this as the year the bubble popped. Perhaps DSL has a bad name at the minute, but the bottom line is — people still want the service.”