3/2/98 CommunicationsWeek T25 (SEE BOLD)
1998 WL 2380636
InternetWeek
Copyright 1998 CMP Publications Inc.
Monday, March 2, 1998
704
Telepath
Information Services
Finally, 56-Kbps modems hit the fast lane
--
After a slow start, a growing number of ISPs plan to offer faster Internet
access
Paul Korzeniowski
Despite all of the hype and headlines that high-speed cable modem and
DSL technologies have received recently, the fastest speed available to
most people for connecting to the Internet is 56 kilobits per second.
But for a variety of reasons, such as a standards dispute and
slower-than-promised throughput, the deployment of 56-Kbps modems has
been disappointing. That should change this year, according to Internet
service providers and industry analysts.
Until the spring of 1997, the top speed for analog modems was 33.6
Kbps. But everybody wanted to go faster, especially as desktop
computers became more powerful and users spent more time visiting
graphically oriented Web sites.
That's why users' shift to 56-Kbps modems seemed like a natural move.
Many users were disappointed, however, when the new high-speed modems
arrived last year. While the devices promised to speed up file transfers
and let users surf the Web more quickly, it turned out that 56-Kbps
services were not widely available. That made it impossible for some
users to take advantage of the additional horsepower.
Some ISPs began offering 56-Kbps service last year, but many decided
to wait and see how quickly the market would develop and which 56-Kbps
standard would prevail. Only a handful of large ISPs developed 56-Kbps
services in 1997, according to Ernie Raper, a senior market analyst at
VisionQuest 2000 Inc., a Moorpark, Calif., market research company
America Online Inc., Dulles, Va., was one of the first to offer the
56-Kbps access. Matt Korn, senior vice president of operations at AOL,
said the company upgraded approximately 80 percent of its 700,000 modems
to make 56-Kbps access available in 540 cities.
The upgrade was easy to justify, according to Mr. Korn: "Modem
suppliers offered a free software upgrade that we could download to each
device."
Netcom Online Communications Services Inc., San Jose, Calif., also
moved quickly to offer 56-Kbps access. The ISP last July rolled out
56-Kbps service in 10 locations and had 60 locations operating by the
end of the year. Netcom officials said they plan to have 56-Kbps access
available in 300 locations later this year.
But most ISPs held back, primarily because of the existence of two
different standards for 56-Kbps technology. When the International
Telecommunication Union (ITU) began considering a 56-Kbps standard in
September 1996, a battle broke out between two groups of suppliers. One
group was led by 3Com Corp., Santa Clara, Calif., which supported its X2
56-Kbps protocol. The other camp was led by Lucent Technologies Inc.,
Murray Hill, N.J., and Rockwell International Inc., Newport Beach,
Calif., which pushed a different standard called K56flex. Both sides
quarreled over intellectual properties while trying to establish their
techniques as the de facto standard.
In the marketplace, the early winner was 3Com. Mr. Raper of
VisionQuest 2000 said the modem supplier delivered its products a few
months earlier than competitors and was able to win a 54 percent share
of all 56-Kbps modems sold in the United States last year.
The standards fight forced ISPs to make some tough decisions. Netcom,
for example, went with 3Com's X2 technology. "We have a long-standing
relationship with 3Com and determined it would be best for us to
continue working with the company's equipment," said Gene Shimshock,
vice president of marketing at Netcom.
Other ISPs, however, opted to remain neutral in the standards battle.
AOL's Mr. Korn said his company's network now has 50 percent X2 and 50
percent K56flex equipment.
But playing it safe increases management chores. AOL has to manage its
modems as though they are two distinct types of equipment rather than
simply one set of modems.
That helps to explain why many ISPs didn't offer any type of 56-Kbps
service last year, and why sales of 56-Kbps modems were somewhat
disappointing. Vendors last year sold 11 million 56-Kbps modems, which
was more than any other new modem technology achieved in its first year,
according to VisionQuest's 2000's Mr. Raper. But many in the industry
had expected that the faster modems would produce sales of 20 million.
Barbara Ells, an industry analyst at Zona Research Inc., a Redwood
City, Calif., market research company, said consumers were confused
about the benefits of 56-Kbps modems and many shied away from buying
them. Users feared they would be left with incompatible or outdated
equipment because of the standards squabble.
They were also concerned about the devices' throughputs, she said.
Real-life usage showed that the modems received data at speeds ranging
from 47 Kbps to 53 Kbps and transmitted data at around 33.6 Kbps. While
this offered a little more speed than 33.6-Kbps modems, it was not as
big an improvement as many users had anticipated.
The slow acceptance of 56-Kbps modems hurt some vendors. In September,
3Com announced quarterly earnings of $1.6 billion, up 28 percent from
the previous year but lower than expected. In a prepared statement, 3Com
chairman Eric Benhamou said that the 56-Kbps standards debate had
delayed wide-scale upgrades from slower-speed modems.
Margins for error
At the same time, "the margins for high-speed modems dropped
significantly during the year," Mr. Raper noted. These devices started
out with a price tag of approximately $175, but they were selling in the
$125 range by the end of the year. "In an emerging market, it's very
unusual to see any price erosion during the first year," he said. "I
doubt that any of the modem suppliers were prepared for the 30-percent
price cuts seen last year."
With modem prices dropping as 1997 ended, many large ISPs began
jumping on the 56-Kbps bandwagon. In November, Uunet Technologies Inc.,
Fairfax, Va., added 56-Kbps support in 415 of its access locations and
expected the number to reach 490. The company opted for K56flex
technology because it relies on network concentrators from Ascend
Communications Inc., Alameda, Calif. The equipment supplier decided to
integrate Rockwell modems in its concentrators.
Also in November, AT&T WorldNet, Bridgewater, N.J., started with
deployment of X2 technology in 46 cities and added nine more before the
end of the year. In December, AT&T WorldNet rolled out K56flex services
in 11 cities and will add 20 more by the end of the year. The company
said it plans to offer 56-Kbps services to all of its users by June.
Declaring a truce
The 56-Kbps movement should pick up speed this year now that the
standards fight has been resolved. In January, the ITU released a draft
of a new standard called V.pcm that incorporates elements of X2 and
K56flex technology and will work with both. The specification is
expected to be ratified formally in September, but equipment vendors
said they will deliver compliant modems and remote-access systems in the
next few months. Vendors have promised that ISPs and consumers that have
already purchased 56-Kbps concentrators and modems will receive free
upgrades so their systems will comply with the new standard.
The change will make it simpler for ISPs to deploy 56-Kbps services;
they no longer will have to choose sides in the standards debate or
support duplicate sets of equipment. "I expect the number of ISPs
offering these services to rise significantly in 1998," said Mr. Raper
of VisionQuest 2000.
ISPs can now turn their attention from technical debates to marketing
the new service. "Because competition is so intense, ISPs have been on
[the] lookout for ways to differentiate their services. They do not want
to compete solely on price," said Ms. Ells of Zona Research.
A few ISPs last year tried using the higher-speed service as a
differentiating feature. "In a few cases, ISPs such as Netcom came out
with tiered pricing and charged customers $5 more [per] month for the
higher-speed service," Ms. Ells said. Consumers, however, who are more
price sensitive than businesses, did not show much interest in the new
service, she said.
Offering a 56-Kbps service won't be a differentiator much longer. With
the new standard almost in place, even small ISPs are expected to roll
out 56-Kbps services during the year. Consumers also are expected to
gobble up the higher-speed devices: VisionQuest 2000 expects 56-Kbps
modem sales to reach 20 million units this year. Consequently, the
higher-speed services should be widely available by the end of the year.
To differentiate their services, ISPs are bundling additional
features. Last March, Netcom announced its Netcomplete Advantage
service, which includes automated delivery of customized Web pages,
virus protection software and support for broadcast faxes. The service
is available for $24.95 per month. In October, the ISP added a second
service-Netcomplete Advantage Pro-that adds technical support as well as
access to an electronic library of newspapers, magazines, book chapters
and scripts for $29.95 per month. Netcom's Mr. Shimshock said
approximately 20 percent of the company's customers have opted for the
new services.
The slow lane
Still, as customers move to the faster service, ISPs must also
continue to support existing customers that use slower modems. Mr. Korn
of AOL predicted that only 20 percent of the company's 8 million dial-up
users will be using 56-Kbps modems by the end of this year.
"Historically, users migrate slowly to higher-speed access options,"
he said. "So while there is a lot of interest in the higher-speed
services, we know we will still have to support many users working with
older, slower modems."
Paul Korzeniowski is a free-lance writer based in Sudbury, Mass.
Word Count: 1549
3/2/98 COMMWK T25
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