Bounding into the Age of Broadband
Business Week Online
How high-speed access will work, what it will mean, when it will get here -- and who will profit from it
At first glance, broadband, a catch-all term for the technologies competing to provide business and consumers high-speed
Internet access, seems like a simple step in the Net's evolution. So the Web speeds up. Big deal, you might think. Aren't
computers always getting faster?
Broadband is a big deal, however. Eventually it will change the shape of all the content on the Web, moving it away from
static text and graphics to much richer video and audio. Businesses will use broadband to create much more compelling
advertising and a more dynamic Web, which should translate into making bigger bucks from E-commerce.
Even though industry analysts think it will be years before the broadband dominates the mass market -- Jupiter
Communications predicts that only 20% of U.S. homes will reach the Internet via high-speed connections by 2002 --
broadband is already big business.
In one of the biggest deals in the Web's young history, At Home (ATHM), the largest cable Internet service with only
330,000 customers, announced on Jan. 19 that it will pay $6.7 billion to purchase Web portal Excite in a stock swap.
This is the highest-profile broadband deal to date, earning front-page notice and gasps at the huge price: At Home is
paying more for Excite than Ford is for Volvo.
Gasps aside, industry analysts believe the deal will lead to a new broadband network with mass-market appeal. Since At
Home is majority-owned by Tele-Communications Inc. (TCI), which is merging with AT&T, the deal points to a future
where telephone, cable, and the Internet may all converge. Forrester Research predicts that the prominence of this deal
will prompt Time Warner's Roadrunner cable service to partner with a major portal. Time Warner and AT&T announced
on Feb. 1 that they'll work together to develop advanced broadband communications services, such as video telephony,
as part of a joint venture where AT&T will offer local-phone service over Time Warner's cable lines. The phone industry
is also inking deals to push its own broadband play --DSL (digital subscriber line) service. America Online (AOL)
announced on Jan. 13 that it is partnering with Bell Atlantic (BEL) to offer high-speed access via DSL -- for an additional
$20 month on top of AOL's regular $22 subscription.
HIGH-SPEED CONTENT. Once broadband reaches the home, Web sites will have to be ready with the rich multimedia experience
users will expect. That plain fact has triggered another slew of deals. Snap!, co-owned by Cnet (CNWK) and General
Electric's (GE) NBC television unit, announced on Jan. 24 that it has developed a new Web portal, Cyclone, which is
tailored for high-speed viewers with video, audio, gaming, and animation. Broadcast.com (BCST) announced on Jan. 26
that three ABC-owned television stations will use it for live broadcasts over the Internet. And RealNetworks(RNWK),
which makes the leading software for sending and receiving video and audio over the Internet, is working with At Home
to develop next-generation streaming media for broadband customers.
"This is a jockeying for position," says Abhi Chaki, an analyst with Jupiter. "Companies want to strike the alliance and
get ahead of the pack and formulate a strategy." They'll have to invest a lot of money now to stake a claim on the
broadband frontier, he says. "But if the goal of a company is to invest for the long term, they should take broadband
seriously."
While companies like RealNetworks and Broadcast.com may seem the most obvious beneficiaries of a new push for
broadband -- both stocks have doubled in January -- legions of smaller companies are also trying to carve out a niche for
a broadband future. FasTV.com is building a searchable library of TV news and other video clips and is poised to
become a key Web destination, Forrester believes. Platinum Technology is working on 3D applications that companies
could put on their Web sites to demonstrate how a product is used or how customers can fix a common problem, such as
clearing a copier of a paper jam. Visual Data is producing videos, such as corporate press releases, or educational
seminars, that corporations can distribute via the Internet. "The whole company is geared to create content for
broadband," says Randy Selman, Visual Data's president. "If everyone had broadband, I'd be a very happy guy."
The first beneficiaries of the new push for broadband -- the ones who stand to earn some real money in the next year --
are the infrastructure companies, which will have to build out cable and telephone networks to accommodate the fatter
pipes broadband needs. Lucent (LU), Cisco Systems (CSCO), and 3Com (COMS) are some of the winners. (Link to
Sam's story)
CONSTANT CONNECTION. Ultimately, though, broadband will improve the way all business uses the Web. The swift download of
pages isn't the only advantage. DSL modems and cable modems, unlike regular modems, can be kept connected to the
Net 24 hours a day at no extra cost. That means it'll be much easier to reach sites for quick information -- movie times,
recipes, news, store locations -- than it is at present, when most homes have to dial up for a connection. To look at it
another way, businesses will have lot more opportunity to reach ordinary folks at home as they're about to make
shopping decisions.
Broadband will also entice advertisers to try "rich media," which at least has the potential to make their advertising more
persuasive. "Video is a very compelling way for a company to deliver a message or product information," says David
Finkelstein, president of corporate Web-site developer Internet Communication Network Corp., which includes Burger
King, Office Depot, and Honeywell among its customers. If the bandwidth could accommodate it, he says he would
design sites with much richer graphics and video, including "hot spots" with links in the video. "The technology is all
there to do it. It is strictly a plumbing issue from our perspective," he says.
Then why is it taking so long to get those high speed connections into homes and small businesses? A smorgasbord of
reasons. Cable operators, which have had to raise billions of dollars to upgrade their plants, are nonetheless ahead of their
Bell competitors, who have been hampered until recently by the lack of technology standards for DSL. In part, the Bells
may have been reluctant to introduce services that cannibalize other lucrative businesses, such as second lines to the
home and even T1 access. But last fall, the Bells agreed on a technology standard, and they're now set to move faster.
Regulatory hurdles must be cleared, however. The Federal Communications Commission is wrestling with ways to speed
along the delivery of broadband services. On Jan. 28, it delivered a report to Congress that reflected satisfaction with the
current status of broadband deployment by all industries, including phone companies, cable operators, and wireless and
satellite players. It did not recommend any new regulation, but it could still consider rules to ensure that local phone and
cable companies won't use their monopolies to squeeze out Net competitors.
One pending proposal would let the Baby Bells offer fast Web access free from regulation if they set up the business in a
separate subsidiary. The absence of rules might give the Bells greater incentive to deploy new technology. If a Bell
decides not to use the separate subsidiary, its high-speed Internet-access business will be subject to the same rules as its
local-phone service. That means the Bell would have to sell pieces of its fast data network to rivals to enable them to set
up competing businesses.
EQUAL ACCESS? A knottier issue is one raised by America Online in the context of the $48 billion pending merger between
AT&T Corp. and TCI. AOL complains that TCI now sells fast Internet connections bundled with its own Internet service,
At Home. TCI's customers, who pay about $40 a month for that service, can still get AOL, but only after paying $9.95 a
month extra for it.
AOL wants the FCC to impose a condition on the AT&T-TCI merger, requiring TCI to give all Internet services equal
access to TCI's high-speed cable system. That way, AOL customers could theoretically opt out of At Home's service and
get AOL via cable modem. On Jan. 27, a group of consumer advocates also asked the FCC to look at the issue. While
the FCC is unlikely to consider the question in the context of the AT&T-TCI merger, it may eventually look at the
possibility of an industrywide rule. Right now, though, most FCC commissioners are wary of intervening for fear that
investment in cable broadband deployment will dry up.
Jupiter's Chaki also thinks that high-speed Internet service -- at $35 to $40 a month -- is too pricey for the average family.
"That's two to three movies a month for the family," he says. "For the mass market to really adopt broadband, prices are
going to have to come down," he adds. Another Catch-22 is that it will take a critical mass of customers before
broadband providers will start lowering prices. One trend that could speed the process, Chaki thinks, is that as more
people start telecommuting, corporations will pay for high-speed access in employees' homes.
With excitement about broadband bubbling up all over, the technology just may become widely available to the public
sooner than currently expected. "The estimates I've seen are going to prove very conservative," predicts Ryan Jacob,
manager of the top-performing Internet Fund.
For consumers, broadband may not be right around the corner. But for businesses that want to stay at the forefront of
Web technology, it's already here.
by Amey Stone in New York and Catherine Yang in Washington
Best of luck. |
