After Excite@Home, the Future Of Broadband Remains Uncertain
By PETER LOFTUS
DOW JONES NEWSWIRES
NEW YORK -- A tumultuous chapter in Internet history will come to a close this week with the shutdown of Excite@Home Corp.'s high-speed Internet service.
Now, the surviving providers of broadband Web access are hoping for a happy ending. But for the market to improve, some industry insiders believe broadband prices, which typically exceed $40 a month, must come down. They also say more attractive broadband services -- such as video and music delivery -- must be introduced. Others want the federal government either to subsidize broadband deployment or to reduce regulation of the industry.
"We had expectations as an industry that broadband would be rolled out on an aggressive schedule. That rollout has stalled," said Eric Benhamou, chief executive of Palm Inc. and a member of TechNet, a Silicon Valley trade group that's lobbying the federal government to promote an ambitious deployment of broadband.
It's too late for Excite@Home, once the largest provider of cable-modem broadband service and a Silicon Valley star. The service will officially shut down Thursday, five months after it filed for Chapter 11 bankruptcy protection, a victim of a convoluted ownership structure and a cash-draining foray into online media. Most of the company's 3.7 million U.S. customers already have been transferred to new broadband services offered by Excite's former cable television partners, including AT&T Corp., Comcast Corp. and Cox Communications Inc.
Excite's shutdown follows the failures last year of companies like NorthPoint Communications Group Inc., which specialized in a rival technology to cable broadband: digital subscriber line service, or DSL, which uses phone lines.
As a result of this shakeout, established cable and telephone companies now sit in the driver's seat in the broadband industry. But their track records aren't so promising. Comcast, which will be the largest cable company following its acquisition of AT&T's cable unit, has saddled customers with service outages and other problems in launching its new cable broadband service in recent months.
Some phone companies, including SBC Communications Inc., have scaled back plans for DSL deployment in the face of high costs and less competitive pressure from the startup DSL providers. They also claim to have little incentive to expand DSL capacity because they're required by law to provide access to competitors at low rates.
The nation's largest Internet service provider, AOL Time Warner Inc.'s America Online unit, remains primarily a dial-up provider. Last week, Lehman Brothers analyst Holly Becker said AOL was making "slow progress" in selling broadband to Time Warner Cable subscribers, and she estimated AOL's broadband operations would lose money through at least 2005.
TechNet, the high-tech trade group, wants the government to endorse the goal of putting broadband connections in 100 million U.S. households within 10 years. In comparison, about 70 million households have Internet access today, and most of them have slow-speed, dial-up access, according to Telecommunications Reports International Inc., a trade publisher.
At the end of 2001, some 12.2 million households had broadband access, according to Cahners In-Stat, a Scottsdale, Ariz., research firm.
TechNet says the government should reduce regulation of broadband, but also provide tax incentives to encourage broadband's deployment, particularly in rural areas and other underserved communities.
The Federal Communications Commission already has taken some steps toward deregulating broadband. Earlier this month, it proposed changing the classification of DSL service to free it from many regulations that govern basic phone service. The measure was backed by the Baby Bells but opposed by competitors, including EarthLink Inc., which fears it would hurt competition in the DSL market.
Not everyone is convinced there's a serious problem with broadband. Bob Pittman, co-chief operating officer at AOL Time Warner, said that the rollout has gone well. "Every new technology, whether it's CD adoption, the microwave oven, color TV, everything happens at a gradual pace," Mr. Pittman told analysts last month. Of broadband, he said "there's nothing in this that's subpar. In fact, I'd say it's better than you would expect."
Judging solely by subscriber growth, Mr. Pittman could be right. Mike Paxton, a Cahners analyst, noted that the 12.2 million broadband subscribers at the end of 2001 was nearly double the 6.8 million the year before. "In the U.S. alone, we're talking about a market that has doubled in size for the last three years. How is that a failure?" he said.
But the problems with broadband are behind the numbers, Mr. Paxton said, and stem from business failures and quality-of-service issues. The demise of Excite, NorthPoint and others has forced thousands of customers to find new providers, often going days or weeks without service in the process. Installation delays, service outages and slow connections also have raised the ire of consumers.
Broadband providers say they're working to improve reliability and quality. Microsoft Corp.'s MSN service was burned last year when its DSL wholesaler, NorthPoint, closed, leaving 7,000 MSN customers without broadband. Now, MSN will strike partnerships with only "very solid companies," said Lisa Gurry, an MSN product manager.
The price of broadband is a contentious issue. Last year, many DSL providers increased monthly fees to between $45 and $50, from $40. Cable broadband hovers around $45 a month. Both are much higher than the $20 to $24 monthly fees charged by most dial-up providers.
EarthLink Chief Executive Garry Betty said prices must drop sharply to jump-start broadband growth. He estimated that only 30% of potential broadband customers are willing to pay $40 to $50 a month. The rest won't get broadband until monthly fees fall below $30, he said.
But prices won't change much in the next couple of years, Mr. Betty predicted. Although they're declining, the costs of providing broadband service are still high, and profit margins are lower than dial-up. EarthLink charges $49.95 a month for its DSL service and $41.95 monthly for cable broadband. Its dial-up rate is $21.95 a month.
AOL's Mr. Pittman said current prices are appropriate. Consumers who are concerned about price will stick with dial-up even if broadband prices fall. He noted that the DSL subscriber base continued to grow in 2001 even after DSL providers raised prices.
Ultimately, the success of broadband comes down to a single question facing a consumer: Do I really need it? For many, the answer is no, according to Michael Kende, a former director of Internet policy and analysis at the FCC.
"Relatively few people are using it because they don't find compelling reasons to do so," said Mr. Kende, now an analyst with Analysys, a research and consulting firm.
What's needed are better broadband applications, he said, just like e-mail was the "killer app" for standard Internet service. Possibilities include video and music services and distance-education. But copyright concerns must be resolved before this can happen, he said.
Updated February 25, 2002 1:30 p.m. EST |
