MONEY Daily:New report forecasts obstacles, stiff competition for , cable modems (fwd)

[James Love <love@tap.org>]

  Weekend, June 1-2, 1996
  
  New report forecasts obstacles, stiff competition for cable 
  modems
  
  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 
  research group. 
  
  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-
  way communication. 
  
  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 
  used.
  
  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."