At least we got our name in an article:
Cable Telephony vs. DSL
Tuesday, April 25, 2000 6:15 AM
by A. Sahoo
In the telecom world, a debate over technology has been raging for the past few years: will DSL or cable telephony eventually dominate as the modality of choice for providing fast Internet access? There are arguments on both sides, and many companies have placed big bets on either or both technologies. In previous articles, I've written about the proliferation of DSL, and interviewed Aware (NASDAQ: AWRE) (article), a key technology supplier whose shares are soaring as the company collects licensing revenues from DSL equipment manufacturers. In this article, I will examine the other side of the coin - cable telephony, and the companies that stand to win big when and if cable spreads its wings.
Like DSL, accessing the Internet via cable offers web users dramatically increased speed. A file that would take 8 minutes to download using a regular dial-up connection, for example, can be downloaded in 8 seconds over a cable modem. Some industry analysts believe that cable is better positioned in the residential market because of the infrastructure and brand awareness developed by cable providers. DSL may dominate the business market, where high-speed data access is more necessary. A recent study by McKinsey & Co. predicts 13.4 million cable modem users and 10.7 million DSL users by 2004. This is up from 1.6 million cable modem subscribers and 228.000 DSL users now.
A few months ago, I wrote about trials Comcast was conducting (article) of advanced telephony services over its cable network. While Comcast is among the early entrants in the cable telephony game, some of the larger cable companies have already deployed service. As of the end of 1999, about 230,000 households were subscribing to cable telephony services offered by MediaOne (NYSE: UMG), Cox Communications (NYSE: COX) and Cablevision (NYSE: CVC). Cable telephony allows a subscriber to obtain local and/or long distance calling and Internet access over their cable connection.
How large is the market for such services? Potentially huge. A recent opinion research study by Arthur D. Little found that up to 34% of US households would be interested in obtaining calling and modem services from their cable provider, because of the potential cost savings and ease of obtaining a bundle of services from the same provider. But, with new players entering the long distance market every day, and DSL quickly being rolled out by the telcos, cable companies are facing stiff competition. They are also under the gun to upgrade their infrastructure, from traditional Public Switch Telephone Network to packet-switched lines, so that they can provide the enhanced services customers are now beginning to demand.
So far, it seems to be the larger cable providers who are embracing new telephony services. A recent survey of 42 cable operators by Cahner's In-Stat Group indicates that while most were planning to add channels over the coming year, only 5 of the 42 had plans to add telephony services. One such company is Insight Communications Co. (NASDAQ: ICCI), the No. 8 cable TV operator in the US with a reach of more than 1.6 million homes. In mid March, AT&T (NYSE: T) announced that it had agreed in to provide local telephone service in areas served by Insight. The deal calls for Insight to market, serve, and bill for the local phone service. AT&T, which is seeking to expand into local service, will install and maintain switching equipment and be the local exchange carrier. For AT&T, which controls nearly half of the US cable market through its acquisition of TCI, this will be the first joint operating agreement that it has entered with a cable TV firm.
Deals are also going the other way, with cable companies buying states in telephone companies. Late last month, next generation phone company IDT Corp. (NASDAQ: IDTC) announced that cable company Liberty Media Group had purchased a 9.9 % stake in the company. Liberty is a cable-programming subsidiary of AT&T, that also owns a stake in Sprint's PCS Group (NYSE: FON); IDTC is the parent company of Internet telephony forerunner Net2Phone (NASDAQ: NTOP). In a statement about the deal, Liberty Media President Robert Bennet said the investment represents "an opportunity to expand our strategic interests in telecommunications and Internet telephony". The market's immediate reaction to the news was to send IDTC shares higher by 3, to close at $35 per share.
As the Internet continues to expand and users demand greater access speeds, cable may not be the ultimate answer, but it seems clear that in the short run, many firms stand to win big by placing their bets on this technology.
Perry P. |
