Choose a Cable Modem or DSL?
The biggest problem: Phone carriers are expanding DSL in small increments
By SHAWN YOUNG
Pat Mooney needed a high-speed Internet connection -- and fast. His marketing firm in Torrance, Calif., AMP Group, had to gear up immediately for a new project, and needed the quick connection to get the job done. His options: a cable-modem connection or digital-subscriber-line service from the phone company.
For Mr. Mooney, the cable service was a no-brainer. At $39.95 a month, the cable modem from AOL Time Warner Inc.'s Road Runner was $10 cheaper than DSL and came with the first month free. It was as fast or faster, and installation would take a matter of days, compared with five or six weeks for DSL. Also, the cable modem didn't require the one-year contract that went with the DSL service, which was offered by Verizon Communications Inc., Mr. Mooney says.
"I actually had to sit down to see if there was something I was missing," he says. "Why would I wait five or six weeks to lock in a 12-month contract to pay $10 more a month?"
In one sense, Mr. Mooney's case is typical of broadband users. As the technology moves into the mainstream, luring average users with the promise of quick and efficient downloads of even the biggest files, cable has a definite edge in the race to wire homes. In the second quarter, cable companies added 667,000 new customers, while DSL carriers picked up 374,000 new subscribers, according to a recent report by Merrill Lynch & Co. analysts Tal Liani and Michael Ching.
In all, there were three million DSL subscribers and 5.1 million cable-modem customers as of June 30, Mr. Liani says. Wireless modems, satellite and so-called fixed-wireless services represent a negligible fraction of the market. According to the Federal Communications Commission, only about 112,000 customers had such services at the end of 2000.
Tough Call
In another sense, however, Mr. Mooney's case is an aberration: He had a choice. In many cases, users are lucky to have one provider in an area. "Normally, you don't have a choice," says Maribel Dolinov, an analyst with Forrester Research Inc. in Cambridge, Mass.
The biggest problem: Phone carriers are expanding DSL in tiny, neighborhood-by-neighborhood increments. And even in neighborhoods where equipment has been installed to provide DSL, many customers can't get it because there's a problem with their individual line or because they're too far from the phone company's hub; DSL service doesn't work as well the farther out you go.
Moreover, a meltdown among DSL competitors to the regional Bell giants has killed off much of the competition in DSL services. The collapse has driven many would-be customers away from start-ups for fear they might go out of business overnight -- and played into the hands of the dominant cable and phone companies. "The competition between the players in this space has declined," says Mr. Liani.
Broadband providers have been quick to take advantage of the situation. The phone giants and some cable companies have raised prices in step with their increasing control of the market, Mr. Liani says. On average, rates have gone up about $10 a month.
Meanwhile, phone carriers have put some broadband promotions and expansions on hold, says Frank Governali, an analyst with New York's Goldman Sachs Group Inc. DSL, though strategically important, is a money-loser at this point, Mr. Governali says, and the regional Bells are trying to protect their profits during the economic slowdown. The phone companies also complain that they are subject to burdensome regulations that don't hamper their cable rivals -- most notably extensive regulations for sharing their networks with competitors, which makes doing business much more complex and expensive, says John Emra, a spokesman for SBC Communications Inc., of San Antonio, Texas.
Price increases, a slowing economy and curbs in expansion helped cut DSL subscriber growth 32% in the second quarter from the previous quarter, and cable growth fell 14%, Mr. Liani says.
The complexities of DSL rollout make it hard to estimate the actual number of people who can choose between DSL and cable. But where they can, analysts say, Mr. Mooney's decision was a typical one. Cable customers say they like the reliability and speed of the service -- not to mention how relatively easy it is to get.
A recent survey conducted by Forrester Research among about 1,500 households with broadband service indicated that "consumers are more satisfied with cable than with DSL," says analyst Jed Kolko. "That counts for a lot in terms of future demand" because broadband installation has moved so slowly, Mr. Kolko says: People have a long time to see how their neighbors like broadband service before it becomes available to them, too.
Horror Stories
Indeed, word of mouth has hurt DSL. Web sites like DSLreports (dslreports.com) have thrived in part by offering customers a forum in which to trade horror stories about the difficulties of getting the service.
The regional Bells say they have solved many of the problems that haunted the service early on. But between the horror stories and the flameouts among DSL upstarts like NorthPoint Communications Group Inc. -- which pulled the plug on its customers virtually overnight after seeking bankruptcy protection earlier this year -- DSL is viewed with suspicion by some customers, says Imran Khan, an analyst at Boston consulting firm Yankee Group.
"DSL has a lot more to overcome," says Mr. Khan. Most people find getting cable modem easier, he says.
"When we say Road Runner is available, it's available," says Mike Luftman, a spokesman for Time Warner Cable. "As far as we know, there's no Web site of cable-modem horror stories."
Perhaps not, but DSLreports does include complaints from cable-modem users, which mostly seem to stem from deterioration in the service after it's installed. Cable is a shared connection: Groups of up to 500 people go online through a shared hub. If too many people pile on at once, the connection can slow down significantly. This fact, says Ms. Dolinov of Forrester, makes DSL a more popular choice for small businesses. Cable companies, says Time Warner's Mr. Luftman, can and do add more capacity if systems become congested.
DSL providers are quick to point out that one of the big advantages to their service is that it's a direct, one-to-one connection between the user and the network. "Your connection is entirely yours, and it's always on," says Michael Bolduc, general manager of consumer services at Verizon Online in New York.
Still, neither service can be relied on to be as fast in normal use as companies boast, because of traffic or the condition of an individual line, among other factors. Providers don't guarantee the speeds, and customers of both services sometimes complain that they can be a lot slower than the marketing indicates. Road Runner offers incoming data speeds of 1.5 megabits to 2 megabits of data per second and sending speeds of 750 kilobits for $40 to $45 a month, says Mr. Luftman.
Verizon Online DSL offers service at 768 kilobits for incoming data for $49.95 a month, according to Verizon's Web site (www.verizon.com). Service with speed of 1.5 megabits for incoming data and 128 kilobits for sent data costs $59.95 a month, according to the Web site.
"Although it's too early to say cable modem is better than DSL, consumers see cable as faster," says Merrill Lynch's Mr. Liani. Mr. Mooney says he has had no problems with his cable service slowing down and is happy with the speed.
Speed aside, phone-company officials argue that DSL has important advantages. Among them: It's easier for customers to choose Internet service providers. With DSL, it is easier to keep your favorite settings, says Tony Werner, executive vice president of strategic technology at Qwest Communications International Inc. in Denver. "You can keep what you like," he says, and adds that he believes cable will lose its early lead over time.
Why the difference in choice? When cable firms started offering online connections, they usually didn't give users a choice of ISP and weren't required to do so by regulators. But as a condition of the merger that created AOL Time Warner, regulators required the company to begin offering choices of ISPs and the company is preparing to comply.
As for another great online hassle -- hackers and viruses -- DSL and cable seem about equally vulnerable, company officials and industry experts say. The always-on nature of the connections makes them easy targets.
"Unless you close the curtains, somebody's going to look in the window," Ms. Dolinov says. Consumers need to be vigilant about updating antivirus programs, and many users, especially businesses, will want to make use of firewalls regardless of the type of broadband connection they have, she says.
Cable modem users need to take particular care to set up file-sharing features on their computers properly so they don't end up inadvertently giving strangers access to their files, Ms. Dolinov says.
-- Ms. Young is a staff reporter in The Wall Street Journal's New York bureau.
Write to Shawn Young at shawn.young@wsj.com |
