DSL and Broadband Basics by Tom Farley and Ramblin' Road
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A telephone company provides near broadband service with DSL by using lines
it already has. Twisted pair connects most telephones to a local telephone switch. It's what we call the local loop, two wires making a metallic circuit to switching equipment. Although better, more capable wire exists, twisted pair makes a cost effective, good quality, low noise connection to the switch. Over the decades twisted pair, otherwise called unshielded twisted pair or UTP, has been installed throughout America for local telephone service. Twisted pair forms the backbone of local telephone infrastructure. The FCC says as of 1998, the United States had179,822,123 local loops, the vast majority still on copper.
The twisting is deliberate. Wires laid in straight lines next to each other pick up signals from each other. It's something called induction, a problem that produces cross talk with voice calls and, mangles information in data calls. Regular, sharp twists of the pair counter the electrical forces at work. New cables such as Category 5, specify strict rules for insulating each twisted pair, with precise twists at regular intervals. Better constructed cables carry more information but telco twisted pair is pretty good, indeed, Ramblin Rode says most installed twisted pair approaches Category 3 wire, capable of carrying 10 megabytes a second. That's six floppy disks worth of information every second. How can two thin wires carry so much information? Bandwidth.
Bandwidth is the space or room in a communication channel a signal has to use. It can be narrow, like a one lane county road, or huge, like a six lane superhighway. Wire size, network efficiency, and intended use determines bandwidth, not necessarily the wire itself, which often has a greater frequency range than is actually used. The telephone system, for example, has long limited voice channels on twisted pair to no more than 3Khz in width, filtering out any voice elements above 3,200 cycles per second. As the Bell System decades ago put it, "The sound frequencies which play an important part in rendering the spoken word . . . intelligible are the band of frequencies within the audible scale ranging from approximately 200 to 2,500 cycles per second. Within this band the frequencies between 700 and 1,100 cycles per second are perhaps of greatest importance."
Nice explanation of ADSL from Broadband Access Technologies: ADSL/VDSL, Cable Modems, Fiber, and LMDS by Niel Ransom, Albert A. Azzam (412K, 13 pages in .pdf)
More information and ordering details from Amazon.com (external link)
It is in this limited bandwidth that your conventional modem operates. To review, a computer deals with only 1s and 0s, on and off pulses of electricity. A modem translates those pulses into audible tones which get sent over the phone line to your local internet provider. We need tones because, again, we are dealing with your voice based, analog telephone line; it passes only sounds in the voice channel as described above. A modem at the ISP receives these tones and converts them back into digital pulses, suitable for the internet and the now all digital telephone network that exists beyond the local loop. Digital and analog signals both vary electricity to represent your voice, but analog transmission means your conversation travels in a continuous wave, not in series of on and off blips, or discrete breaks, like the way a digital phone line does. Without repeating my modulation article, let's look at the difference between analog and digital signals.

Above: analog signal. A continuous wave. Electricity works the phone and it represents your voice by varying that current. Conversation, in other words, causes the current's resistance to go up and down, thereby representing your voice. The signal above is a duplicate, an analog, of your voice. It represents in electrical form the acoustic pressure put on the telephone transmitter by your conversation. Get it?
Below: digital signal. Current goes on and off. No wave thing.

You might wonder why you can't go digital from your computer to the local switch. Digital all the way? Well, that's exactly what expensive services like T-1 provide. But with T-1 you need two pairs of twisted pair, costly equipment at each end of the line, and the telephone company to condition or prepare your twisted pairs for fully digital service. They also need to change the voltage on your line from about 52 volts to about 135. And even then, you need to install a separate analog telephone line in case of a blackout, since you probably won't install backup power equipment for your T-carrier based phone system if the lights fail. Price? Hundreds of dollars a month.
With DSL lines, though, you can still use a conventional analog phone, one that doesn't need auxiliary power, to communicate. (You'd still need backup power of course to run your computer and to operate the modem.) There's much to be recommend in keeping an analog line! But let's get back to bandwidth and the limitations of the voice channel.
Bandwidth on telephone company twisted pair is actually much larger than the 3,000 cycles permitted. Some say it approaches, depending on the size or gauge of the twisted pair, 16Mhz in width. That's a wide road over which a great deal of information can travel. But even if we removed filtering from the line we wouldn't have a much bigger channel within twisted pair, since the greatest widest voice channel we could hope for is 25,000 Mhz. So how do we proceed then?, how do we make the communication channel bigger? , to make our downloads faster? After all, you need that big JPEG of Nikki Taylor now! We'll, we do it with radio.
A more advanced look at ADSL from Broadband Access Technology, Interfaces, and Management by Alex Gillespie (194K, 12 pages in .pdf)