3Com Winning 1st Round in Battle of 56K Modems: Technology Focus
Santa Clara, California, Sept. 18 (Bloomberg) -- 3Com
Corp.'s new 56K modems are pulling ahead of rival products,
hurting companies like Ascend Communications Inc. that bet on a
competing standard from Rockwell International Corp.
3Com and Rockwell provide two different technologies for Web
surfers to link to and retrieve information from the Internet at
fast speeds. 3Com's aggressive marketing, three-month head start
and well-known U.S. Robotics brand put it out front among
consumers. It's also pulled ahead in sales of modem systems to
phone and other companies that connect people to the Internet.
``I'd hesitate to say they've won the war, but they've
certainly conquered the mainland,'' said Ernie Raper, an analyst
at VisionQuest 2000 Inc.
Still, all modem makers are feeling the heat from the
rivals' bitter standards battle, which is reminiscent of the VCR
industry's VHS versus Betamax war. The result: U.S. modem sales
at retailers will increase about 8 percent this year to 12.8
million units, less than half last year's 19 percent growth,
according to VisionQuest's projections.
That's also less than the 15 percent to 20 percent rise in
sales of personal computers expected this year, and the 50
percent or more annual growth in Internet subscribers.
``The marketing from both sides has been so effective that
they just froze the whole market,'' said Tony Zalenski, president
of Boca Research Inc., which makes modems based on the Rockwell
standard.
Battle Royal
The standards battle began late last year, when U.S.
Robotics decided it could boost its sales by rushing out its 56K
product before an international norm was set. U.S. Robotics' X2
modems, which let customers get data from the Internet at fastest-
ever speeds of close to 56,000 pieces per second, reached stores
in February. 3Com completed its $8.94 billion purchase of U.S.
Robotics in June.
Rockwell's development work on its rival K56Flex standard
was held up by software problems in its microchips. K56Flex
modems reached the stores in late April and May.
Because the consumer modem in the home and the central site
modem at the Internet service provider must use the same standard
to communicate, consumers and ISPs curtailed buying, waiting to
see which standard would dominate, or whether a truly universal
standard would emerge.
So far, it hasn't, although an agreement is expected next
year. All the modem makers are cooperating with the International
Telecommunications Union, which is trying to create the measure.
``We haven't seen the big surge in buying we will see in
1998 or 1999 after a universal standard is agreed,'' Raper said.
Most modem makers have pledged that consumers will be able
to get free upgrades to the new standard when it's set, either by
retrieving new software from the Internet, or by taking their
older 56K modem to a store to get a new circuit board.
Early Lead
3Com's X2 technology helped it win 120 new customers among
Internet service providers, said 3Com Vice President Joe
Dunsmore. That includes large companies like PSINet Inc., which
before this year didn't use U.S. Robotics central site equipment.
``X2 is now in eight of the 10 largest ISPs in the U.S.,''
Dunsmore said.
3Com's biggest rival in the central site business, Ascend
Communications, is struggling with software problems in
Rockwell's K56Flex technology inside its own central modems and
in the home modems they communicate with, Ascend customers said.
David Van Allen, founder and chief executive of Allentown,
Pennsylvania-based Fastnet Inc., said his company has lost
hundreds of customers because of frustration over trying to
connect with Fastnet's Ascend equipment.
Customers experienced lost connections and, when they could
stay connected, often ran at speeds even lower than the previous
33.6 kilobits modems, he said. The problems are caused by old,
experimental Rockwell software in the consumer modems, he said.
``We have good (software) code in our Ascend stuff, but they
have buggy, bad code in their home stuff,'' Van Allen said.
The bad code has since been replaced, yet it will still take
weeks to ``flush out the bad modems,'' Van Allen said.
Phil Kippen, vice president of operations at Enternet
Communications Inc. in Van Nuys, California, said that Ascend's
problems aren't just with consumer modems. The problems go back
to a product Ascend brought out last year, the Max 4004, Kippen
said. He tested it at Enternet's central site and rejected it in
favor of U.S. Robotics equipment.
``We had drops in connection and slow speeds. We never got
over 29 kilobits on a modem that was supposed to do 33.6,''
Kippen said.
Ascend Vice President Bernie Schneider told Bloomberg News
last week that Ascend has shipped hundreds of thousands of
56K modems and has many happy customers. Schneider did not
respond to calls for comment this week.
Other ISPs have said they've had good results with Ascend's
56K devices. They also said that Ascend has been offering big
discounts since July.
``Ascend is feeling a lot of pressure and they are reacting
financially,'' Van Allen said.
Market Share
3Com also parlayed its first-on-the scene status to its
advantage among consumers. In the first eight months of 1997,
3Com/U.S. Robotics won about 65 percent of the U.S. market for
56K modems, a big lead over second place Hayes Microcomputer
Products Inc., with 10 percent, according to VisionQuest.
Rockwell Semiconductor Systems President Dwight Decker said
he expects K56Flex to surpass 3Com's X2 by year-end in the number
of ISPs offering 56K connections. Today, 450 ISPs offer K56Flex
connections, compared with 926 worldwide claimed for X2 by 3Com.
``We'll have 1,500 ISPs by the Christmas time frame,''
Decker said.
Meantime, about 80 percent of people who surf the Internet
at home are using modems at speeds of less than 33.6 kilobits,
holding back the potential of getting appealing video and sound
over their computers.
``As soon as people feel all the modems out there will talk
to each other, huge pent-up demand will be released,'' Boca
Research's Zalenski said.
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