Telcos must embrace naked DSL opportunity

20 Feb 2006

The onset of naked DSL — whereby consumers may cancel an existing PSTN (public switched telephone network) service but retain the DSL broadband service — is not the threat that most telecom operators have assumed and may increase profits rather than decrease profits, new research indicates.

A new report from UK research player Analysys says the financial impact of naked DSL without a compulsory PSTN voice service on incumbent telcos is likely to be small.

Analysys says that incumbents and market regulators should move to introduce naked DSL (NDSL) as soon as possible.

Depending on their revenue structures and competitive positions, incumbents could see slight overall revenue gains or losses, according to the report’s author Tim Hills. “These changes are largely insignificant in the context of the continuing decline in traditional PSTN revenues,” says Hills.

“However, incumbents can use NDSL to strengthen their position as broadband and mobility become the key consumer telecoms markets and the traditional PSTN service declines in importance.”

The financial impact of NDSL on incumbents in total revenue terms is likely to be slightly positive in certain environments and almost neutral in others. It is envisaged by Analysys that NDSL could increase EBIDTA (earnings before interest, depreciation, tax and amortisation) margins by less than 1pc.

NDSL breaks the association between the DSL broadband service and the PSTN service, so that a customer may cancel an existing PSTN service but retain the DSL service.

Until recently, incumbent telcos have generally resisted NDSL, fearing the immediate loss of revenues from the absence of the PSTN subscription and suspecting that it will exacerbate the move of voice usage away from the PSTN towards mobile and voice over IP (VoIP).

Some industry observers have suggested that NDSL could have a serious effect on incumbents by deeply eroding the core PSTN revenues that still underpin much of their overall revenues and profitability.

Tim Hills continues: “NDSL may not be quite the threat that some have assumed; incumbents can gain a favourable outcome from its introduction but it requires a major change of attitude from them.

“They [telcos] need to develop a strong and appealing retail NDSL offering to capture as much as possible of their existing large PSTN customer base as it migrates to NDSL. Vitally, they must also provide an attractive wholesale NDSL offering to competitors in order to cap the growing threat posed by fully unbundled local loops (FULLs).”

By John Kennedy