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from businessweek, 12/28/98 issue...
THE INTERNET: FILLING THE
NEED FOR SPEED
The scramble is on to supply fatter
data pipelines to the home
When Ken Kasner moved to Centerville, Va., from upstate New York last year,
the biggest sacrifice his family had to make was leaving behind the thick coaxial
cable for his computer. A high-speed ''broadband'' Internet connection via cable
modem--a service called Roadrunner--had changed Kasner's life. Instead of
watching TV, the systems engineer would spend hours nightly playing computer
games with his five-year-old daughter, doing research, and clicking through Web
sites just as quickly as TV couch potatoes channel-surf. ''We always kept the
Internet on, like the radio,'' says Kasner. He's already preregistered with
Roadrunner Computer Systems Inc. to resume the service when it arrives in
Virginia next year.
What's good for the Kasners is good for the nation--at least when it comes to
getting the most out of electronic commerce, which many economists view as a
linchpin of America's high-tech future. ''If we can get broadband to the home
faster, E-commerce will grow faster,'' says Federal Communications Commission
Chairman William E. Kennard. ''And American business will stay on the cutting
edge of this trend worldwide.'' Adds Michael Malaga, CEO of broadband
startup NorthPoint Communications Inc. in San Francisco: ''Between now and
the millennium, broadband access to the Internet will become as important as
electricity was at the turn of the century.''
For that prediction to come true, a lot has to happen in 1999. At the moment, the
broadband Internet access that the Kasners learned to love is not available to the
vast majority of American homes. And, as millions of consumers try to shop at
Amazon.com and other online outposts during this first truly online Christmas,
cybertraffic over conventional phone lines has slowed to a crawl--spawning the
catchphrase ''shop till you get dropped.'' If that bottleneck persists, the
development of E-commerce could be crimped.
But there's reason to believe that the new year will indeed bring a huge advance in
the availability of broadband. From Silicon Valley to Washington, technology
experts, business execs, and policymakers are swarming on the problem. On Jan.
28, the FCC is expected to start laying down rules for how the cable operators
and their rivals, the phone companies, will deploy these new services. And not a
minute too soon.
The industry, meanwhile, is pounding on the FCC's doors with urgent demands.
Cable companies, which are spending $33 billion to gear up for broadband, don't
want their new services regulated. The Bells say they can't unleash fast Internet
services without getting into the long-distance market. They also want exemption
from rules in the 1996 Telecom Act that could tie their hands in these new
businesses. Meanwhile, America Online Inc. has told regulators it must have
access to the cable operators' high-speed pipes on reasonable terms.
AT&T and its pending merger partner, cable giant Tele-Communications Inc.
(TCI), aren't eager to open up their lines to AOL; they want to give their own
Internet service first dibs on their fast cable network. Behind the scenes,
however, AOL and TCI are trying to negotiate an amicable arrangement.
The FCC is trying hard to create policies to speed up the arrival of broadband
service--but without giving any of the players a particular edge. ''We're working
desperately to create a competitive dynamic so the cable, wireless, and phone
industries work up a sweat competing to deliver broadband services to the
home,'' Kennard says.
Already, cable operators and local phone companies are vying in the market. The
telcos are revving up, but in the next two years, cable is likely to hold the lead.
Coaxial cable is better suited to carrying high-speed traffic than ordinary phone
wires, and the services are also cheaper (table). Right now, of the 25 million
American households online, less than 500,000 have the cable modems that are
needed to get data traffic over cable. The TCI-controlled @Home network--the
largest cable Internet service--has only 210,000 customers. But it's growing 40%
to 50% a quarter. Time Warner Inc.-controlled Roadrunner, with 160,000
subscribers, adds 4,000 every week.
At the same time, phone companies are bringing out a technology, digital
subscriber line, or DSL, that can send broadband traffic over ordinary wires. The
industry will soon standardize a low-cost DSL modem, which Compaq
Computer Corp. and others plan to build into some PCs. As a result, says
Data-quest, the ranks of DSL subscribers could zoom from just 50,000 now to 5
million worldwide by 2002, putting the telcos and cable companies in a dead
heat.
HOBSON'S CHOICE. But the phone companies say upcoming FCC rules
could stall their plans. Concerned about the Bells' potential clout in local Internet
access, regulators are floating a choice: Resell your DSL service to rivals at a
discount or spin it off to subsidiaries. The Bells hate this idea and have enlisted
powerful allies in the computer industry to lobby Congress against it. But with
Internet traffic eclipsing voice on phone networks this year, telcos can't afford to
dawdle. Ameritech Corp., for one, has opted to set up a subsidiary. If a phone
company doesn't get into data now, says Ameritech CEO Richard C. Notebaert,
''you're going to miss the wagon.''
Perhaps the biggest indication that broadband is coming of age is cybergiant
America Online's entry into the race. AOL, which offers its service mostly via
slow dial-up modems now, needs to boost speed for 14 million subscribers or it
could lose customers to the fast Internet service offered by @Home and
Roadrunner. AOL has been engaged in DSL trials since April with GTE, Pacific
Bell, US West, Bell Atlantic, and BellSouth.
But phone partners aren't enough for the online titan. It's battling to get a better
deal with the cable operators. Right now, TCI sells the @Home service along
with the broadband connection for $40 a month. Any user who wants AOL must
pay an extra $9.95 a month on top of that. AOL complains that TCI's bundling of
Internet access with @Home puts other online services at a disadvantage. It has
asked the FCC to require AT&T-TCI to sell its high-speed service at wholesale
rates to AOL and to other Internet companies. ''We're perfectly prepared to
compete with @Home on the merits,'' says AOL General Counsel George
Vradenburg III.
The FCC may choose not to decide the issue when it reviews the proposed $48
billion AT&T-TCI merger. Instead, it could address it this January, when it begins
exploring rules for the entire cable industry. AT&T and TCI say the AOL request
jeopardizes their deal by undercutting the returns on the $1.8 billion invested to
upgrade TCI's cable plants for speedy data transport. ''No one will make these
investments if they're required to make it available for anyone else that comes
along,'' says AT&T Senior Vice-President James W. Cicconi.
Telcos also face big investments and big risks. And DSL technology has some
snags, says Yankee Group analyst Jim Wahl, including not working over long
distances. But Americans don't much care if their high-speed pipe is a TV cable
or a phone wire. Nor do the digerati, it seems. At Microsoft Corp., which has
over a billion dollars invested in fast-cable assets, engineers praise GTE's budding
DSL service which they use to log onto the office network from home.
In the same way, mainstream Americans will welcome competing services in an
expanding market. Satellite and digital TV broadcasters, among others, are also
scrambling to provide fast Net access. Don't think of the broadband battle as a
boxing match, advises Royce Holland, CEO of Allegiance Telecom. He says it's
more like a golf game, where everybody is trying to get the best score. The more
companies enter the fray, the more likely that consumers like the Kasners will
emerge the victors.
By Catherine Yang in Washington, with Ronald Grover in Los Angeles and
Andy Reinhardt in San Mateo, Calif. |
