COPPER, CABLE GET READY FOR REMATCH
By Peter Jerram
Red Herring Online
September 21, 1998
As home and business users flock to the Web in growing numbers, the race is on to deploy high-speed access to the Internet.
The question of who will win -- copper or cable -- is once again being asked. With the pending sale of cable giant Tele-Communications Inc. (TCOMA) to AT&T (T), and the recent rollout by Pacific Bell of the first phase of its high-speed Internet-access service, the stakes are getting higher than ever.
High bandwidth in the home is becoming a consumer question as much as an industry concern. The question for consumers is how specific price differences between cable modems and DSL technology will play out.
Who's winning?
In teaming with such progressive cable-modem-based Internet service providers as @Home (ATHM) and Time Warner's Road Runner (TWX), cable operators arguably have the jump. But are they squandering it?
Faced with bureaucratic and technical hurdles, they have been slow to consolidate their lead.
This spring, the telcos stepped into the breach, rolling out their own take on broadband Internet services -- digital subscriber lines (DSL). Like the cable companies, the telcos are using existing infrastructure, to presumably make it faster and less costly to offer high-speed access. (Telcos use a flavor of DSL technology called asynchronous DSL, which reserves higher bandwidth for receiving than sending information; speeds range from 128 Kbps to 7 Mbps.)
In terms of pricing, cable operators promise two-way speeds of about 1.5 Mbps for an average of $39 a month, which includes both the service and unlimited access to the Internet. Installation fees, including a modem and network card, range from $99 to $175.
By comparison, the telco pricing structure seems downright byzantine. Bell Atlantic, which serves the Northeastern U.S., offers 1.6 Mbps service for $59.95 per month. A DSL modem, connection and installation fees amount to $523, though Bell Atlantic will reduce the entry fee to $198 for a one-year contract.
But those fees do not include access to the Internet. For that, you'll need to find an ISP that can handle a DSL connection. Most telcos run their own ISPs, but you might find a better deal elsewhere. BellAtlantic.net will charge you $20 to $80 a month for unlimited access. So, even best-case scenario, the customer is still paying several hundred dollars for the pleasure of DSL access, as compared with cable Internet access.
Testing, testing
But just how are the telcos rolling out DSL? And why is deployment of both DSL and cable-modem access taking so long?
As a test, we tried Pacific Bell's service. The customer-service representative first verified that service was available in our area -- Menlo Park. To be eligible for DSL, customers must be within about three miles of a telco central office, where digital switching equipment is located.
The fastest service available in our area was two-way 384 Kbps -- the same speed in both directions. We opted for a slightly slower service -- 384 Kbps for incoming data, and 128 Kbps for outgoing -- for a lower monthly cost of $59. For DSL Internet access, we signed up with PacBell.net for additional $30 per month.
As installation neared, we got a call from a Pac Bell rep who said our service would be delayed by a few days due to "router problems." Hours later, Pac Bell's installation contractors, Prime Services, called to schedule installation for the original date, about three weeks after the application. A flurry of phone calls ensued, as we tried to explain to Pac Bell that they'd neglected to communicate with their own contractors.
Eventually, two technicians from Prime showed up to install the lines and the modem, and to configure our Windows PC with PacBell.net's IP addresses. The service came up without a problem. Pac Bell charged us $125 for the installation, which included the modem, but required a one-year contract.
The service worked without interruption for a few days, then quit unexpectedly. A technician answering the phone at Pac Bell's support number admitted that "it's a new service, so there are a few problems." He promised to call back within five "business hours." No one ever phoned, but the service started again by itself and has worked reliably since then.
"The telcos aren't as consumer-oriented as the cable companies," says Lisa Pelgrim, senior analyst with Dataquest in San Jose.
We also installed a Cayman Systems 2E500 router to distribute the signal to several machines on a LAN. Using Cayman's instructions, we had little trouble connecting all of our machines, which were then able to independently share the DSL line using a single IP address.
Shared Internet access is a potential advantage DSL has over cable.
While it is possible to share a cable modem, cable operators typically charge extra for the feature. Comcast, for example, charges $6.95 per month each for up to two additional connections. However, while cable operators officially discourage the use of a router to share the cable, "we know it is possible to do it," says Heidi Clark, chairman and CEO of Cayman.
Even factoring in the cost of shared access, cable appears to be considerably less expensive than DSL. So how are the telcos going to compete using a pricing structure that appears to be, at best, three times the cost of cable?
For the time being, at least, they may not have to. "The plain truth of it is, there aren't many places where you have a choice," says Beth Gage, senior broadband consultant with TeleChoice in Northglenn, Colorado. "It's either one or the other and you're lucky to get what you've got. For 1998-99, the name of the game is who gets to the customer first."
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