V.90-Based Modems On The Way [ASND reference]
sumnet.com
From the Systems pages of Electronic News: July 13, 1998 Issue
Peripherals
New protocol, due for ratification, can resolve K56flex, x2 standoff
By Cynthia Bournellis
San Jose, Calif.--The dog days of summer may be here, but the season's activities are anything
but lethargic in the modem market, as the rollout of V.90-based modems begins at Internet
service provider operations.
Established by the International Telecommunications Union (ITU) in February, V.90 is a new
protocol for 56 kilobit-per-second analog modems. Previously, there were two competing,
proprietary, de facto standards--K56flex (from Rockwell International) and x2 (from 3Com/U.S.
Robotics). The V.90 standard, which provides very specific methods and techniques for
communicating at up to 56K, is under review by the ITU and is scheduled for ratification in
September. It will lay to rest the long-term battle over the two existing protocols. However, there
are some performances differences between products based on these two solutions. A V.90
Work Group was formed earlier this year to ensure interoperability between V.90 products. But
for the most part, the industry agrees that the turbulence surrounding this issue has subsided.
The acceptance of 56K is primarily coming from larger Internet service providers (ISPs) and is
being supported by central site equipment makers, such as Ascend Communications, Cisco
Systems, Livingston Enterprises and 3Com. Many vendors either have or will soon release new
code that allows ISP ports to be V.90-compatible, so that ISPs won't have to decide whether to
deploy x2 or K56flex central site equipment. America Online, the Microsoft Network and
UUNet Technologies all have begun to upgrade their networks to V.90. For instance, AOL
claims that 80 percent of its network of 700,000 modems is 56K-compatible. And 700 ISPs
now have V.90 technologies in place based on remote access products from 3Com. Earthlink
Networks, in a partnership with WorldCom's UUNet unit, has V.90 in more than 700 points of
presence, totaling 300,000 network ports. Once this is done, users can receive flash upgrades
from OEMs to allow their x2 or K56flex modems to run V.90.
Companies more likely to hold off on V.90 upgrades are smaller ISPs, whose infrastructures
were built around older, slower technologies, such as V.34 (33.6kbps). Many of these ISPs have
to make heavy investments to go from V.34 to V.90, replacing old modems with new ones and
adding T1 connections--whereas larger ISPs have deeper pockets and can afford the luxury of
upgrading their existing state-of-the-art networks to V.90 through software. Because of financial
considerations, "some smaller ISPs will sell themselves to bigger ones who can buy their customer
base," said Will Strauss, an analyst at Forward Concepts in Tempe, Ariz.
V.90 is also getting support from computer companies. Gateway is one of the first OEMs that will
begin shipping V.90 modems with its digital media computer systems and Solo notebooks by the
end of August. Gateway is also upgrading its Internet service to the new communications
standard.
The past year has been a turbulent one for the modem industry. Many vendors suffered severe
losses in 1Q98 as they transitioned from 33.6kbps to 56K, and the confusion from users over
which technology to buy--K56flex or x2--kept product purchases at bay. Meanwhile, a glut of
modems hit the market, driving down prices. Fingers were pointed at U.S. Robotics, as
competitors filed lawsuits alleging that USR deliberately dumped product into the channel to
inflate the value of the company as it was being sold to 3Com. In previous written statements,
3Com had responded by stating that its inventory problems had been resolved. "You'll see us
concerned about managing inventories...as new technologies come out, we'll remain more
focused," said Rich Hartwig, senior product manager of the client access business at 3Com, in a
recent interview with Electronic News.
Today, some vendors are still recovering from the inventory spill. "User inventory isn't fully under
control, and it has taken us one year to bring excess inventory in the distribution channels to
manageable levels," said Henricus Cox, VP of marketing at Boca Research. Boca was one
company that took a big hit in revenue in 1997. It reported a 54 percent decrease in sales for the
year, attributing much of that to the issues mentioned above.
What more can be said about the analog modem business? It continues to remain a business of
high volumes, low margins. And while technologies keep improving and products are faster,
margins keep thinning and will continue to do so as major factors, such as the build-to-order
models among computer and other systems OEMs, force suppliers to hang onto inventories.
Modem prices will continue to do what they've always done: plummet. Pricing on 56K products
has already crashed, as average selling prices this past year were cut in half, from $200 to $100.
While V.90 is the fastest and the last analog modem standard, it is predicted to lengthen the life
expectancy of 56K products to roughly eight years. With that said, what lies ahead for modem
makers? The flurry of activity arising on the digital communications front is a clear indicator that
vendors can no longer rest on their analog laurels. Survival of the fittest has become the mindset of
many OEMs, as they reassemble their troops to conquer newer opportunities and technologies.
Somewhere between 56K and beyond lies a number of new options. In the short-term, the most
obvious are asymmetrical digital subscriber line (aDSL) and cable modems, two other competing
platforms analysts expect will take over when 56K winds down. Most vendors have announced
plans to support aDSL, as services to corporations and homes have starting to unwind. In a race
with aDSL are cable modems. Vendors such as Hayes Corp. recently announced plans to
expand its cable modem operation through OEM partnerships, such as Bay Networks, and other
sales channels. And last month's AT&T/TCI merger agreement (EN, July 6) could significantly
jump-start this market.
Companies such as Boca, which acquired the modem business of Global Village Communications
(EN, April 13), is looking more and more to the Internet to grow its revenues. Boca is working
on Internet access devices--thin clients and set-top boxes with Ethernet cards, not modems. "We
have a product that is compatible to the WebTV model, but we've chosen not to compete with
WebTV," said Mr. Cox, referring to the company's sub-$400 BocaVision set-top box. Unlike
WebTV, Boca's Vision, which will be sold via retail, will not force users to use a specified ISP,
Mr. Cox said. Meanwhile, on the corporate side, Boca believes that network computing is a
promising model going forward and is where the company will sell thin clients. Looking at the
future, Mr. Cox says a new modem market will emerge for wireless devices based on the Internet
protocol. "The Internet is pervasive outside the home, not in it. The only thing that talks IP to me
(in the home) is my PC. We see other devices outside the home that will need to be linked
together, such as a car that can communicate with a set-top box controller in the home."
"Soft" modems are another area into which companies are dumping R&D funds. And soft
modems could kill the hardware modem business; they sit on the motherboard and get their
power from the microprocessor. Soft modems aren't a huge threat yet, but they are out there.
More than 3 million have sold to date, according to market research firm In-Stat. |
