THREAD ---The year OF broadband ---January 29, 1999
Tech Week
At Long Last, There Are Signs
Of a Broadband Revolution
By JASON FRY and TIMOTHY HANRAHAN
THE WALL STREET JOURNAL INTERACTIVE EDITION
PAUL SOMERSON, the columnist for "PC Computing," got off one of
the best lines in recent memory a couple of months back: "Will DSL ever
reach my home? Will next year's most popular baby name be Slobodan?"
What's even funnier, though, is that it looks like 1999 really will be the year
that DSL -- or the cable modem, its rival high-speed solution -- arrives for a
substantial number of actual consumers.
There are more and more rollout schedules, more and more deals offering
free modems, and more and more discounts on installation. There are
high-profile alliances that make you sit up and take notice, and Internet
acquisitions made with an eye toward a broadband world. In short, there is
hope -- something high-bandwidth dreamers had just about given up.
What are the reasons for the change? Some of them are external to the
cable-TV companies and telephone companies that are finally bringing
broadband to homes in earnest. Last spring's mania for "portal" sites got a
number of media and telecommunications giants into the Internet game for
real, giving them an interest in removing the access limitations hamstringing
the Internet's further development. The extended boom in Internet stocks has
had a similar effect, sending old-guard firms looking for a new coat of
Internet paint that will bring in investors' money.
And then there's the most important external
factor as well: fear. There's the fear of AT&T
Corp. and its landmark merger deal with
cable-TV giant Tele-Communications Inc.,
which makes AT&T the power behind At
Home Corp.'s throne. There's the worry that's
intensified among telephone companies as cable
modems have proved popular with consumers.
And there's the fear that built as it became
clear that the federal government, tired of
begging telephone companies and cable-TV
companies to pick up the pace, wasn't going to
block the AT&T/TCI deal.
As ironies go, that one's truly delicious. The
Baby Bells weren't born imperious, lazy and
utterly uninterested in new ideas -- they got that
way because they were spinoffs of Ma Bell,
which infected them with its Soviet West
mentality. But battling its spawn to get back into
the local-phone market reinvigorated AT&T
and sent it looking for new weapons, of which
TCI's network looked best. AT&T, which bears
the blame for no small part of the nation's
telecommunications pain, may now get a chunk
of the credit for ushering in competition and
jumpstarting high-speed access.
But there are internal factors as well. No one who doesn't work for them
would say -- at least not with a straight face -- that cable-TV companies and
telephone companies are eager to explore new markets, respond quickly and
cheerfully to customers' wants, and have an appetite for taking risks. But
both industries did face a tough and expensive task: upgrading billions of
dollars in equipment and field-testing untried technology.
They didn't exactly move at Internet speed, but that's not entirely their fault.
Telecommunications and cable-TV infrastructure costs billions and has to
last for a long time: It's not throwaway stuff like last year's PC or a Web site
without a tacked-on e-commerce mission. The Queen Mary may look like a
jet ski compared with a Baby Bell or cable-TV company changing direction,
but the smart companies in both industries are now moving the right way.
And more heartening, the dumb ones may soon face the killing blow of
competition they aren't prepared for.
In late 1997, Phoenix market-research firm Kinetic Strategies Inc. reported
that about 4.5 million homes in North America would be able to get
cable-modem service by year's end, and about 110,000 people would actually
pay for it. Now, says Kinetic President Michael Harris, about 23 million
homes can get cable modems, and about 550,000 customers do so.
At the end of 1997, DSL was only available to customers in scattered trials;
now, it has about 40,000 paying customers. Obviously, it's still far behind
cable modems -- but Mr. Harris says he thinks 1999 will be the year in which
we'll see "a real DSL response from phone companies."
Behind closed doors, phone companies have long been somewhat ambivalent
about DSL. One worry is that business customers might trade in their
high-speed services, such as the pricy T-1 lines now ubiquitous in most office
buildings, for DSL. Cable-TV companies didn't face such cannibalization
worries, and so rolled out high-speed access more quickly. ("Quickly" being a
relative term stretched not quite to the breaking point when used to describe
bringing broadband to the home.) Telephone companies also feared that the
government would force them to resell their high-speed networks at cost to
competitors, as they have to do with local service.
But now that telephone companies' ambivalence is fading. Washington
tea-leaf readers think the FCC will let the Bells create a separate subsidiary
for their DSL service and not have to resell their networks. (The FCC also
backed away this week from a proposal to launch an inquiry into whether
cable-TV firms should be forced to open up their high-speed networks.) The
Bells are also pressed by real competition, or at least its threat. And the
escalating number of dial-up users is threatening to flood their networks;
DSL, Mr. Harris notes, reduces the strain on the phone companies' switches.
With the arithmetic changing in phone-company boardrooms, the arithmetic
for DSL users is changing, too. Earlier this month, America Online Inc. and
Bell Atlantic Corp. joined forces to offer AOL subscribers DSL service in
Bell Atlantic's service area. AOL users will be able to get access to the Net
at up to 640 kilobits per second for $39.95 a month -- about $20 more than
standard AOL service, true, but significantly below the $60 a month Bell
Atlantic was charging for such access. And the AOL-Bell Atlantic service
should be available to about four million existing AOL customers.
Other companies are moving, too. SBC Communications Inc. said earlier this
month that it was undertaking "the largest rollout" in the country for DSL,
bringing the service to nearly 10 million residential and business customers.
Meanwhile, lean and hungry competitors such as Covad Communications
Group Inc., Northpoint Communications Inc. and Rhythms Inc. (which just
announced an investment from MCI WorldCom Inc.) are battling to grab
market share in areas the Bells haven't reached.
But if DSL is reaching a "tipping point," cable modems may be, too. Home
penetration remains frustratingly low -- despite more rollouts, about the same
percentage of potential users opt for cable-modem hookups as at the end of
1997 -- but the signs are good for the industry. Mr. Harris notes that
installations will soon get easier. Currently, most cable-modem installations
require two installers, which is expensive for the cable-TV industry. But
standards-based solutions are on the way in the next 12 months, and cable
modems should drop into the $200s at retail -- or even come bundled with
PCs. That will make installations much easier.
Most frustrated consumers don't care which method reaches them first --
either will do when neither is the current choice. But while having one
method available to access the Net is good, having both is better.
Widespread broadband access won't just mean fewer hourglasses: It could
turbocharge any number of promising infant industries. In a broadband world,
Internet telephony seems a lock to go from curiosity to commonplace.
Streaming media will be revolutionized, though on-demand video will remain
a ways off. Home networking will likely become a bonanza, as entrepreneurs
rush to offer different standards and systems. Chip and PC makers will be
thrilled too, as consumers will once again need more processor speed.
In short, it'll be a revolution -- one that most home users can be forgiven for
assuming would never arrive. In too many places the old order still reigns, but
at last, you can hear the guns.
BEST WISHES
BILL
PS ---And business is going to slow down ---not likely |
