Sale opp, part III
Also critical, the cable companies are in a better position to invest than they were even a year
ago. Although they still can't match the deep-pocketed telcos, the cable players have benefited
from Gates's investment and Wall Street's newfound faith in the industry.
PRICE PRESSURE. Still, the phone companies have several key advantages. Cable-modem
users share the cable pipe with others in their neighborhood. That's a security risk because a
marginally skilled hacker could dig his way into a neighbor's computer files. Sharing a pipe also
means that Net speeds drop as more people use it. ''It slows a little at peak times,'' concedes
Leonard, the @Home user. Cable also may have to cede much of the business market, since most
companies don't have cable-TV connections. DSL also has the advantage of being fast both in
bringing data to your computer and in sending it out. More than 80% of cable modems have to
send data back to the Net over sluggish phone lines.
Cable and DSL connections share one common disadvantage today: They're not available in most
parts of the country. Even with US West's rollout, fewer than 25% of U.S. households will be able
to use either service this year. That has opened the door for an alternative: satellite service.
Hughes Electronics Corp. is selling DirecPC, which provides Net connections of 200 to 400
kilobits per second (KBPS) for $20 to $130 per month. ''You can get this service in every corner
of the United States,'' boasts Paul Gaske, a senior vice-president at Hughes.
That may be a lasting advantage in some locales. While both DSL and cable service will become
available in urban and suburban regions, satellite service from Hughes, Teledesic, and others may
be the only offering for rural parts of the U.S. ''We absolutely get all of that,'' says Gaske.
Although its speeds are relatively sluggish, Hughes has won some 60,000 customers worldwide.
Satellite speeds will get much faster: Downloads of 10 million bits per second are possible in the
next several years.
While businesses are buying the new services first, residential customers offer the biggest
opportunity. The key to penetrating the consumer market will be price. A recent Yankee Group
survey of over 1,900 U.S. households found that more than two-thirds of Web surfers want faster
access to the Net. But fewer than 10% are willing to dole out even $40 a month, including Net
access.
That means @Home and the other cable providers have a leg up, at least for now. But the phone
companies won't stand pat. ''For us to drive the kind of penetration that's possible, we have to
drive the cost down,'' vows Joe Zell, a US West vice-president. With the phone and cable
companies starting to slug it out, Stepp may soon have his fast Net connection back.
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