Cable access future
clouded by DSL
By Michael Kanellos
January 20, 1998, 1:25 p.m. PT
Although it is faster and currently available, cable
modem Internet access faces stiff competition from
DSL (digital subscriber line) modems and Internet
service.
A heated effort from four of five Bell telephone
companies and a panoply of technology giants
working to promote high-speed
access through DSL is creating a
formidable competitor to cable
services when perennially
cash-strapped cable players need to upgrade their
systems.
Cable's biggest problem, observers say, is cash
flow. Cable operators are going to have to invest
millions over the next few years to upgrade their
systems to carry two-way Internet traffic. Although
the telephone giants face their own investment
requirements, cable companies may have to invest
more and may not have the same access to capital.
"The technological issues [for cable] are trivial. The
problems are social and economic," said Radu
Andrei, director of engineering at Semico
Research. "Their problem is their conflict of
economic interest with the telcos...There are not
too many users so far, much less than expected."
Cable defenders, on the other hand, point out that
inexpensive DSL at this point remains a pipe
dream. The technology isn't currently on the market
and the main proponents have yet to agree on
technical standards. Cable vendors, by contrast,
have settled their standards issues and currently
provide service, pointed out Lisa Pelgrim, senior
analyst at Dataquest. Modems based on the
Multimedia Cable Network Systems (MCNS)
standard will start to come out this summer, which
should boost popularity and ease in implementing
cable access.
Cable will also provide faster service, providing a
maximum of 30 mbps. Although the speed will slow
with the addition of subscribers, it will remain faster
than the 1.5-mbps pace promised by DSL.
But while the technological issues facing cable
Internet access may not be difficult, they likely will
be expensive, according to Will Strauss, president
of Forward Concepts. Currently, only five percent
of cable subscribers live in zones where two-way
cable connectivity exists, he said. An @Home
spokesman said that two-way coverage reaches 10
million homes.
Thirty percent of subscribers will live in two-way
areas by 2000, but increasing that number will take
significant investment, said Strauss. At the same
time, the increase of two-way signals will require
cable owners to work the means for reducing the
noise and interference that will come with increased
traffic.
By contrast, DSL will be cheap, said Semico's
Andrei. It will cost operators probably only $100
per customer to perform the upgrade as outlined by
the phone companies.
As a result, DSL service could be slightly cheaper,
said Strauss. Monthly cable Internet access will run
around $30 to $40 while DSL should cost $30 to
$35. Modems for either will run in the $200-plus
range.
Current DSL service is far more expensive. Some
of the telcos charge close to $150 per month for
384-kbps service, sources say, while the charge for
1.5-mbps/384-kbps receive/send capability is
around $250 a month.
Investment is not being denied to the larger cable
operators. These companies are obtaining funds
from some of the same firms funding DSL.
Microsoft has invested approximately $1 billion in
Comcast, while Microsoft, Sun, Intel, and others
jockeyed over themselves to work with
Tele-Communications Incorporated to develop
set-top box technology that will allow viewers to
more easily obtain Internet access via their TVs.
Beyond the investment issue, the speed of cable
holds a significant attraction for consumers, said
Pelgrim. In addition, the cable/DSL debate is
something like the fight between the elephant and
the whale. That is, these giants will not really
compete directly because they will serve different
markets. Cable will mostly target homes because
that is where the cable infrastructure leads. DSL,
meanwhile, will target businesses.
"Very few users are going to have a choice of both
for the next few years," added Pelgrim.
Sandra Colony, vice president of public relations
for Road Runner, one of only two cable Internet
services available today, asserted that her industry
understands how DSL can change the landscape,
but she remains confident of cable's viability.
"We see the consumer market and the SOHO
[small office/home office] market as our targets.
We are not after the enterprise business market [at
the present time].
"By the time they [DSL] launch, we will have had a
two-year lead," she added.
Meanwhile, @Home Network (ATHM) reported
a jump in revenues today as the company signed on
additional subscribers to its consumer and its
business service, which is called @Work. Revenue
grew to $3.7 million for the quarter ending
December 31, a 95 percent jump over revenues of
$1.9 million reported in the September quarter. The
company reported revenue of $535,000 in the
fourth quarter of 1996.
Net losses for the quarter, before a non-cash
charge of $172.6 million related to a Cablevision
distribution agreement, were $11.8 million, or 10
cents per share. Including the charge, the net loss
for the quarter was $184.4 million or $1.55 per
share, compared to a net loss of $11.9 million or
10 cents per share in the previous quarter of 1997.
Revenue and net loss for the fourth quarter of 1996
was $500,000 and $9 million, respectively. |
