PluggedIn: Despite Struggles, Broadband Isn't for the Birds
By Duncan Martell
SAN FRANCISCO (Reuters) - The growing list of failures among companies
that provide high-speed access to the Internet might make you think broadband is for the birds.
Think again.
At the beginning of this year, there were 5.2 million U.S. households with a high-speed hook-up to the Internet, either through a cable TV modem, telephone or other fixed-wire modem or a satellite dish, according to a recent study by market research firm Jupiter Media Metrix.
By the end of June, that figure swelled to 7.5 million.
And, by the end of 2001, Jupiter predicts there will be 10 million U.S. households will have a zippy
connection that is fives times faster or more than dialing into an Internet service provider, or ISP, via a
traditional modem.
There are a total of 60 million U.S. households linked to the Internet, when normal dialup and broadband
are combined, and the business is still growing.
As it turns out, just because companies such as ExciteAtHome, Covad Communications and Northpoint
Communications can't seem to figure out how to make money peddling super-fast Internet access
doesn't mean consumers, at least in the United States, don't want it.
``Even companies that are gone entirely, like Northpoint, didn't necessarily go under because they
weren't successful in signing up new customers and seeing demand,'' said Dylan Brooks, a senior
broadband analyst at Jupiter Media Metrix. ``All the stories of the death of broadband have been greatly
exaggerated.''
Of course, projections and forecasts are just that. But given the rapid increase in the number of U.S.
consumers willing to shell out about $50 a month for high-speed Internet access, Jupiter Media Metrix's
forecast issued last week showing 41 percent, or 35.1 million, of U.S. households will have a speedy
connection to the Internet by 2006 may not be far fetched.
GROWING PAINS
Consider ExciteAtHome, which filed for Chapter 11 bankruptcy protection Sept. 28 after a disastrous
$6.7 billion merger more than two years ago that combined the portal Excite with high-speed
cable-modem Net access provider AtHome. While it's struggling with a $1.1 billion debt load, it has 3.7
million subscribers, making it the largest provider of high-speed Net connections.
``It's not that people didn't want the service,'' Brooks said. ``The real question is whether you can deliver
it profitably and have enough financing to get through the growth phase.''
Starting companies up ``is very capital intensive,'' Brooks added, but the hope is that the company will
survive ``to the later years where you can turn cash-flow positive.''
As the broadband business goes through its growing pains, companies large and small are learning
valuable lessons, even though many have proven to be markedly uncomfortable.
ExciteAtHome, whose formation many critics pooh-poohed as hasty, sought to grow as quickly as
possible in the heyday of the dot-com boom, hoping to rival AOL, now AOL Time Warner Inc. Its
future is now in question.
Others chased broadband and failed.
NBCi.com, backed by General Electric Co.'s NBC network, staked its future as a broadband portal and
ended up being shut down. So, too, did Quokka Sports, although licensing squabbles over footage from
the Olympics also helped to play a role in its April 2001 filing for Chapter 11 bankruptcy protection.
``A fair number of companies experimented with having broadband-only sites, and those flamed-out
rather dramatically,'' Brooks said. ``These have all mostly been abandoned because they were designed
to ignore the largest audience out there.''
Even household names such as AT&T Corp. have fallen victim to the buy it, build it, they will come,
mantra. After spending tens of billions of dollars to snap up cable companies to become a cable giant,
and, with it, a dominant provider of broadband access, AT&T has put its cable operations on the auction
block.
FACTORS SPURRING GROWTH
What's spurring the growth of broadband? The so-called early adopter often raced to high-speed Net
access to gain faster access to pornographic Web sites, which often showcase large photographs or
bandwidth-intensive video. Or, they were avid online gamers, day traders, or people who had their own
Web sites.
Not so anymore.
``Now it's people saying I'm helping my kid with his homework, not what's the best way to access
pornographic sites,'' Brooks said. ``You're seeing families and folks with kids coming online in broadband
and fewer single guys who just want the speed.''
Increasingly, in fact, speed now matters less than having an always-on connection to the vast, global
database of everything grand and noble, as well as puerile and base about the human condition, that is
the Internet. In its recent survey, Jupiter Media Metrix found, for the first time, that the No. 1 reason a
dial-up user would shift to broadband access was the persistent connection it offers.
Perhaps even more compelling is the principal reason for broadband access' continued growth:
something as old-fashioned and time-tested as word of mouth.
``The No. 1 reason that consumers are giving us as to why and how they came up to sign up for
broadband is referral from a friend,'' Brooks said, adding that cable and phone companies are now
stuffing monthly bills with inserts touting their broadband offerings.
Some, such as Verizon Communications Inc., formed in 2000 when Bell Atlantic bought GTE and is now
the No. 1 local phone company and No. 2 telecommunications services provider behind AT&T, recently
began offering broadband access for $19.95 a month for the first three months with no costs up front.
``You're already seeing some of these large broadband providers get back into the aggressive marketing
campaign business,'' Brooks said.
It sounds an awful lot like Verizon, with its incentive to get U.S. consumers hooked on broadband, is
figuring a bird in the hand is worth two in the bush.
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