Steve:
I don't think it's going to be as fast as you think.
ARCHIVE
April 21, 1999
Cable Modems: Not So Fast?
By Alec Appelbaum
At Home
WE EXPECTED some acrid email from America Online (AOL) devotees when we ran a story last week suggesting that the Dulles dynamo might lose customers to cable-modem-service providers such as At Home (ATHM) and Road Runner, a service owned by Time Warner (TWX) and MediaOne (UMG). But we didn't expect readers who use these cable modems to be so disdainful of the service they already get.
One reader called it "spotty." Another used the word "lame." Edmund Kwan wrote, "Many of my friends have At Home. I was told At Home goes down about two to three times a week, and each time for hours." A Colorado reader wrote, "At Home is down about 50% of the time. The only reason I use At Home is because I want my phone line available [when I use the Web]." So maybe AOL has more time than we thought to cobble together a strong broadband strategy.
For the short term, even At Home bulls don't see the service trampling AOL. Merrill Lynch analyst Henry Blodget, in initiating At Home coverage with a Buy rating last week, wrote that the stock should "trend higher as long as the company continues to meet or exceed targets." Merrill, which is advising At Home in its purchase of Excite (XCIT), says the company "could challenge AOL" if that merger thrives. But since that's a big "if," At Home first needs to upgrade its network and customer service.
At Home is taking steps to do that. Company spokesman Matt Wolfrom says customer-service calls are down by 50% since last June and annual "churn," or the rate of canceled subscriptions, is running below 7.5%. The improvement has come in part from 200 new servers the company recently installed. Further gains are expected when AT&T (T), which controls 71% of At Home, begins providing At Home with dedicated space on a 15,000-route-mile network. That, says Wolfrom, willl improve At Home's backbone capacity a 100-fold after August.
Another crowd pleaser should be a new modem standard called DOCSIS, which will be available for retail sale in December. The new modems, Wolfrom says, should also help improve quality and reduce the price of monthly service, which now includes a $5 average monthly modem rental fee.
Analysts expect that the new modem standard and cable's faster speed will lead cable-modem installations to outpace DSL connections, the high-speed telephone service AOL plans to resell, by about 2 to 1 in three years. Indeed, AT&T pledged last week to increase its At Home subscriber count by 500% before next June or else turn over some of its At Home stock to Cox Communications (COX), another At Home backer.
Even with service woes, At Home clearly leads the high-speed market -- so far. "It would be very unrealistic for any consumer at this stage to have cable modems up and running on par with dial tone," explains Credit Suisse First Boston analyst Kristen Koh. "If they're unhappy, they should try DSL, which is an order of magnitude worse." But that could change. As DSL gets rolled out to more communities and is supported by more technology, it could close the quality gap quickly. SBC Communications (SBC) announced Tuesday that it will soon start upgrading its network to support 200,000 DSL customers by the end of this year.
While it's too early to tell how DSL will be embraced, it's clear that the customer-service problems dogging cable-modem providers offer a window to AOL, which will resell DSL service from SBC and Bell Atlantic (BEL). It needs to market its DSL alternative aggressively, and it needs to ink deals with cable-service providers to add AOL to their Internet offerings. (AOL says it is negotiating with several.) Already some cable-modem users pay extra to get AOL access with their cable service. AOL just needs to convince the cable companies that they can make more money with its popular service than with speed alone.
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