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MONEY Daily:New report forecasts obstacles, stiff competition for , cable modems (fwd)
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- Subject: MONEY Daily:New report forecasts obstacles, stiff competition for , cable modems (fwd)
- From: James Love <firstname.lastname@example.org>
- Date: Mon, 3 Jun 1996 18:54:10 -0400 (EDT)
Weekend, June 1-2, 1996
New report forecasts obstacles, stiff competition for cable
Cable access technology, although expected to boom, won't
replace your dial-up modem anytime soon
by Michael Brush
Tired of waiting while your analog modem downloads all those
color graphics on that Web site someone told you to check
out? You have plenty of company. That's one reason sales of
cable modems -- which provide a much faster connection to the
Internet -- will skyrocket over the next four years,
according to a study released this week by a California-based
By 2000, annual sales of cable modems should reach almost one
million, compared to the mere 13,000 sold last year, says
Dataquest Incorporated, of San Jose, Calif. But the study
says it's far too early to declare that cable modems will
ever become the industry standard.
For one thing, a number of alternative systems -- like ISDN
and xDSL -- are offering tough competition.
It's also not clear that cable companies will be able to
successfully market their pipeline to the 'Net. "The most
compelling reason to use a cable modem is speed, but speed
alone won't be enough to win the battle," notes Lisa Pelgrim,
the Dataquest analyst who wrote the report, titled "Cable
Modems: Speed Is Not Enough."
To succeed, the study notes, the cable companies need to take
advantage of their role as content providers and develop
unique products, not just offer 'Net access. Some examples:
short-term "rental" access to expensive software that would
otherwise cost thousands of dollars, interactive games, and
video on demand.
Another challenge cable companies face is the time-consuming
and costly upgrading that needs to be done to convert their
network of wires into a two-way communications system.
Cable can provide two-way communications by dedicating a
cable channel to the so-called "upstream" data transmission
from the end user at home back to the 'Net. But to do so
requires a lot of money. "The big question is whether they
have the money to do it," says Pelgrim.
Pelgrim estimates that only about 5% of cable networks now
permit two-way communications. She believes that the first
parts of the U.S. to receive cable modems on a commercial
scale will be the densely-populated metropolitan "yuppie
areas" where consumers will be more willing to pay for two-
Cable operators face many additional challenges in trying to
make cable modems a success, according to the Dataquest
report. Among them are the following.
* They lack technical and support experience with the
equipment needed for two-way communications. "The service
quality will need to be closely monitored and the customer
service departments will need to be prepared for ongoing
interaction with end users," the report notes.
* As anyone who has spent the day waiting for the "cable guy"
knows, cable companies have a poor record when it comes to
customer service. They can get around that by opening up new
divisions that handle their data business, a step that should
shield the cable modem divisions from the poor service image
of the cable businesses.
* Cable companies will have to price their product
aggressively. "The cable companies can provide higher speed,
but that higher speed has got to be reasonably priced,"
Pelgrim notes. Dataquest expects the monthly fee to be under
$50. But it might not be easy to meet that price target,
given the fact that cable companies will have to buy the
modems they lease to users, install them, and provide ongoing
support. One solution might be to offset the costs of
building up the infrastructure by taking investment money
from long distance carriers who want to provide voice
transmission over the cable network.
For these and other reasons, its too early to conclude that
the expected upturn in cable modem sales means that you can
write off the phone companies as competitors. That's the
case, even though phone companies have been slow off the mark
to develop the high-speed ISDN system in North America, a
system that is highly popular in other parts of the world,
like Europe. The threat of two-way cable services might be
the spark needed to get them moving for real.
"We are now starting to see more energy in that sector in
North America," Pelgrim says. What's more, ISDN prices have
been coming down -- about 25% a year for the past several
years. And phone companies have the advantage of an existing
infrastructure and deep pockets. In addition, several phone
companies, like U.S. West and GTE, are already experimenting
with yet another data transmission method -- the cutting-edge
xDSL system, which is actually three different types of
systems. The "x" is a generic variable that stands for one of
three letters ("A" for asymmetrical, "S" for symmetrical,
and "H" for high data rate) which represent three different
types of DSL (digital subscriber line) technology that can be
But in the end, it's likely that no single system will
dominate. Each one may find its own niche market. Cable
modems, for example, may end up specializing on the consumer
side. That's partly because fewer cable lines run into
businesses offices, whereas high-throughput phone lines
already are available to carry the competing ISDN and xDSL
systems into offices.
There are other reasons why a cable system might be less
popular for businesses, points out Joseph Baylock, vice
president of the Gartner Group, a research and information
technology consulting firm based in Stamford, Conn. For one
thing, phone companies are more reliable, an important factor
when it comes to telecommuting, where companies want to avoid
any downtime. Another problem is the large number of
different cable companies in any given area. That might mean
that a business would have to manage and service an unwieldy
"fleet" of several different kinds of modems, which would be
more time-consuming than if there were just one standard.
Whatever happens, analog is likely to be the most common
system used for both 'Net access and telecommuting over the
next five years," predicts Baylock. "It has the key
attributes of being cheap and ubiquitous."