briefing.com Stock Brief on DSL/cable modems
Updated: 20-May-98
Raising the Internet Speed Limit
Currently the Internet is divided into two separate worlds: those with high
speed network connections (mostly at their place of work), and those with low
speed dial-in modems (mostly at home.) The Internet experience is very
different, depending upon which world you are in.
Over the next eighteen months, this will all change as new technologies are
deployed. Today's Stock Brief presents a short primer on the two principal
technologies that will make high speed Internet access more accessible and
affordable: Cable Modems, and Digital Subscriber Lines.
Cables Modems
Delivery of internet services over the existing cable infrastructure looked like the
only promising technology two years ago. Using the existing coaxial cable
wiring into your home, the Internet digital signal is superimposed over the
cable signal allowing both systems to be used at once. A splitter divides the
cable into two cables for attachment to your TV or VCR and for attachment to
your cable modem.
Cable modems currently require installation by a technician because few
homes have the splitter installed. From the splitter, a cable connects to the cable
modem, external to the PC, and the cable modem connects to an Ethernet card
installed in the PC. Most companies providing cable modems require that you
use a specific cable modem and they either sell it or lease it. In many ways,
the business model resembles the existing cable TV business model.
Cable Internet service generally costs approximately $30 to $50 per month
with an installation cost of $150. The cable modem can usually be rented or
purchased. Most cable Internet providers do not require that you also subscribe
to cable TV, though it is likely that most people do.
Cable modems provide an "always on" condition, meaning that you do not
need to dial in for access.
Cable modems provide speeds of up to 10 Megabits per second (Mbps) or
roughly the same speed as raw Ethernet transmissions. However, because of
the way that cable signals are distributed through neighborhoods, up to 500
homes at a time may share the same entry point onto the Internet. Although it is
unlikely that this type of resource sharing would degrade transmission speeds
for existing Internet uses, it may be problem for future uses, such as on-demand
video. Most cable Internet providers quote maximum speeds of between 3 and
10 Mbps.
Cable modems generally provide data transmission of equal speed in both
directions (downloading and uploading.)
Two of the best known companies offering cable Internet access are @Home
(ATHM) and MediaOne (UMG). @Home is a company primarily funded by
cable giant TCI and venture capital giant Kleiner Perkins Caufield & Byers,
along with other cable companies. MediaOne is a subsidiary of US West,
although US West has a proposal before shareholders to make US West
Communications and MediaOne separate companies.
Digital Subscriber Lines
DSL stands for Digital Subscriber Line. DSL technology brings high speed
internet access across ordinary twisted-pair phone lines. Strictly speaking, the
term refers to the modem, and not the telephone line. Just as putting a 56K
modem on a phone line does not make it a "56K" line, putting DSL modems on
a line does not really change the line. Nevertheless, people think of DSL as
"lines" because the DSL technology is a point-to-point technology. There must
be a DSL transmitter on the originating end of the phone line. In addition, the
provider charges for each "DSL" line installed.
There are several variations of DSL technology, summarized below:
HDSL: High Speed Digitial Subscriber Line (two way high speed data
transmission)
ADSL: Asymmetric DSL (one way high speed data transmission)
VDSL: Very High Speed Digital Subscriber Line (two way faster speeds
up to 45 Mbps)
RADSL: Rate Adaptive Asymmetric Digital Subscriber Line (Variable
rate data transmission)
For the purposes of this discussion, we focus only on HDSL and ADSL.
HDSL can be thought of as the business DSL, while ADSL will be
primarily used in homes or at the consumer level.
HDSL allows bidirectional transmission of data at speeds up to 1.5
Mbps. This is roughly the same speed as a T-1 data line. HDSL is primarily
for the business market because bidirectional transmission of data is generally
only needed when you are serving data to others on the Internet.
HDSL is an improvement over T-1's in implementation. The term T-1
actually refers to a transmission protocol, not the type of wire used. When T-1
is implemented on ordinary phone lines, it requires two sets of lines and cannot
be used over distances of 3,000 feet, without installing repeaters. In addition,
T-1 does not allow simultaneous use of the voice and data signal.
ADSL, the consumer implementation of DSL, allows download of data at
speeds up to 7 Mbps. Implementations of ADSL vary widely, with some
offerings having download speeds of only 1.5 Mpbs. (Higher download speeds
are accompanied with shorter distances from central offices.) However, in
nearly all cases uploading of data is limited to approximately 640 Kbps (still
more than ten times the speed of a 56K modem). Upload requests for most
consumer applications are not speed dependent, however, and this limitation
may not matter.
One of the strong advantages of ADSL deployment is that it can use existing
phone lines. Since nearly all houses have phone lines, the potential for rapid
deployment is high. As soon as a telephone company installs DSL transmission
equipment in their central office, the technology is widely available.
All DSL modems provide an "always on" condition. You do not dial-in to
access the Internet. An additional pleasant feature is that phone conversation
and Internet transactions can occur at the same time.
It is important to note, however, that just as ISDN and T-1 lines can be
provided by other vendors, DSL lines can be offered directly by Internet
Service Providers.
Most ADSL subscribers require a splitter, as do cable modems, to separate
the voice and data signal. Generally, this means installation by a technician.
However, splitterless DSL, sometimes called DSL-Lite, gives up speed
capability in exchange for putting all of the analog/digital separation technology
at the DSL lines origination point.
A small company named Aware Inc. (NASDAQ: AWRE) in Bedford,
Massachusetts, has already developed firmware for a DSL-Lite chip. The
technology has been licensed by Lucent Technologies, who will produce
DSL-Lite modem chip-sets. This means DSL-Lite modems should be
appearing soon. You plug your DSL-Lite modem directly into the wall and then
plug both your phone and the PC into the modem. Then, just turn it on. This
development is critical as it will allow the individual consumer to simply call and
order an ADSL line on one of their existing phone lines in their house and then
plug in the computer. Although this technology limits the download speed to 1.5
Mbps, it is still more than 25 times faster than a 56.6K modem.
There are disadvantages to the DSL technology, however. The biggest is
that you must be within 3 miles of a phone company central office. For densely
populated areas, this may not be a problem, however, on the outskirts of the
suburbs, DSL lines may not be available, unless the DSL provider installs well
located repeaters.
A second disadvantage is the DSL technology is not universally
standardized. Actual implementation varies by the provider. From a practical
point of view the only drawback is that this limits the type of modems that you
must use to those which are compatible with your provider.
Pricing of DSL services varies widely. US West offers ADSL-Lite in tiered
pricing, based upon the actual speed offered. For speeds of up to 256Kbps, a
DSL line costs about $40 month. Full ADSL service with speeds up to 7 Mbps
costs between $120 and $800 per month. GTE offers DSL-Lite (at 680 Kbps)
service on a limited basis in California for $125/month.
However, DSL technologies are much cheaper in other places. Optimum
Communications in Tampa, Florida is offering 3.2 Mbps ADSL and 1.2 Mbps
HDSL for $99/month. NETinc, in Canada, offers a full 7 Mbps implementation
ADSL in Hamilton, Ontario for only $50/month for residences and $200/month
for businesses.
It is likely that DSL services will decline sharply in price over the next
twelve months as more and more providers roll out the service.
Our Analysis
In examining technologies, it is tempting to look only at the the technical
differences. We make an effort to look for the business differences as well as
the technical differences. After all, Betamax was definitely better than VHS, but
it failed because of business reasons.
On the surface, both cable modems and the consumer ADSL technologies
seem to provide extremely similar capabilities. Both offer "always on"
capability and use existing infrastructures. Both have strong financial backers.
Although prices vary widely, some DSL offerings are comparable in price.
The only clear sustained advantage we can see goes to DSL technology,
simply because there is a possibility of more vendors to the consumer. DSL
pricing can be lowered, but cable modems can only be provided by your
existing cable company, either directly or through that company's relationship
with an Internet vendor, such as @Home.
Currently, cable modems have the price advantage. However, when it isn't
available, a price advantage doesn't matter. Cable modem access to the Internet
is extremely limited, with availablity mostly in limited areas in California.
Whether cable Internet providers can get everyone signed up before DSL
technology becomes widely available is unclear.
When will DSL technology become widely available? By this time next year,
DSL services will be widespread. Even America Online is working on providing
ADSL services directly to its customers.
In the consumer marketplace, splitterless DSL-Lite technology seems very
promising. The ease of installation alone is a factor that may make it succeed
over other technologies. Although slower than cable modems, the increased
speed is probably adequate for most users. However, lack of standardization
means that PCs will likely not be shipped with DSL modems preinstalled. Cable
modems also face this same problem however.
Whatever happens, it seems certain that the speed limit on the Internet will
soon be raised to very high levels. We will be watching both areas for
developments and looking for companies likely to benefit. So far, only US West
seems to have a stake in both technologies, with US West Communications
offering DSL services and MediaOne Group offering the cable Broadband
service.
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