3Coms PC Cable Modem Could Be Retail Pioneer

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3Com Corp. has begun shipping a personal-computer-embedded
cable modem that could be the beginning of the industry's long-awaited breakthrough
into the retail mainstream.

The modem consists of circuitry built into a PCI
(peripheral component interconnect) card that can be inserted in PCs at the factory or by
end-users.

It is the first modem designed for internal use in PCs to
be submitted for certification in the ongoing DOCSIS (Data Over Cable Service Interface
Specification) process at Cable Television Laboratories Inc.

While orders from domestic customers -- including computer
manufacturers and MSOs -- are not expected until CableLabs issues its coveted DOCSIS
"sticker," some MSOs outside of the United States are already receiving
shipments of the PCI-based unit, said Levent Gun, vice president and general manager of
the cable-access group at 3Com. He would not name the MSOs.

"We're also seeing a lot of interest among U.S.
MSOs and PC manufacturers," Gun added, noting that Dell Computer Corp. has already
committed to using the modem in some PC models.

MSO sources said they expect the modem-equipped Dell
computers and similarly equipped PCs from Compaq Computer Corp. to be available in time
for the holiday sales period this year.

PCI versions of DOCSIS 1.0 modems require a slightly
different testing procedure than external modems.

But such devices fit readily into this phase of the
certification process without requiring CableLabs to set up a separate procedure, said
Rouzbeh Yassini, the executive consultant to CableLabs heading up the cable-modem
initiative.

"Because the PCI-based modem eliminates the need for
an Ethernet card, it requires a special interface with the PC," Yassini said.
"But it's up to the manufacturer how that interface is accomplished."

The availability of PCI modems will have a significant
impact on hardware costs, Gun said. Embedded modems don't require a separate chassis,
they can run off the computer's power supply and they eliminate the need for the
Ethernet NIC (network interface card), he noted.

"The lower cost is a big reason why MSOs are
interested in buying the modems," Gun said. "Their technicians still must
install the cards directly into the PCs, just as they do today with the Ethernet NICs, but
it saves the consumer the cost of the NIC and it saves the MSO the costs of an external
modem."

PCI-based modems represent the first generation of
PC-embedded units, which will be followed by modems that are compatible with the Universal
Serial Bus currently available in most new computers and, much later, by modems conforming
to the still-undefined specifications of the Host-Based Processor model.

PCI modems that come installed in computers, of course,
will eliminate the need for installation support. But when purchased as separate devices,
they'll require the same level of know-how as installing Ethernet NICs.

While users following fairly straightforward instructions
can install any PCI-based NIC, MSOs find that most installations require the presence of a
trained technician, which is one of the key barriers to a more aggressive pace of
penetration in the cable-data business.

USB-based modems, however, will truly be
"plug-and-play," insofar as operating systems like Windows 98 are designed to
automatically initialize and set up USB devices, Gun noted. "You could quickly
eliminate sending a technician once USB modems are available," he added.

With testing procedures still to be completed before
USB-modem certification can begin, the manufacturing community is gearing up for this
version of the cable modem in anticipation that commercial distribution could begin
"within two quarters," Gun said. This would put the USB version into circulation
sometime toward the end of this year or early next year.

"Multiple vendors are building to that spec," Gun
added. "We expect that about one-half of the households signing up for cable-data
services will have USB-capable PCs by the time the modems are commercially
available."

With the availability of modems embedded in PCs in the
manufacturing process, the cable industry will be able to circumvent some of the hassles
it has encountered in attempting to win retailers' support for distribution of
external modems, which require separate shelf space.

Moreover, while most cable-data customers will have already
purchased PCs without embedded PCI or USB cable modems once those items are in
distribution, the fact that these new devices will take up far less shelf space than
today's cable modems should help to overcome retailer resistance to stocking DOCSIS
gear.

But it remains to be seen whether the cable industry can
overcome retailer demands for a share of after-sale "residuals," or percentages
of the revenue operators derive from high-speed-data services.

"We still don't know what the real prospects for
getting wide-scale retail support will be, even once the manufacturers are shipping modems
on cards," said the chief technology officer of one MSO, asking not to be named.

"We've lost a lot of time focusing on retail and
DOCSIS as a panacea, when the real issue is whether we, as an industry, are willing to
commit to the spending on field personnel and customer support that's needed to make
this business fly," the CTO added.

The ultimate dream in the evolution to high-speed data is
that computers will eventually come with modems based on the HBP concept, which will cut
costs to the bone by allowing modem functionalities to be run off the core processing
power of the PC.

PCs with HBP modems inside will be compatible with either
DOCSIS or DSL (digital subscriber line) modems, allowing users to download software and
configure computers to run whatever type of modem service they choose.

"Rumor has it that HBP cable modems will cost in the
range of less than $100," Yassini said.

But there are issues to be resolved before CableLabs can
begin drawing up HBP-modem specifications, including the question of how systems will be
secured against hacker attempts to use computer functionalities to disrupt networks.

"Making sure we have the right architecture is
something that will require cooperation among many suppliers, but we have a lot of vendors
working with us on the issues," Yassini said.

It will probably take another 18 months to develop the HBP
specs and to begin working on the testing parameters that must be set for certification to
get under way, Yassini added.

Along with a need to bolster technical support in the field
while awaiting the evolution to true plug-and-play capabilities, the industry also needs
to be working on a more streamlined approach to self-installation of the modems, Gun
noted.

DOCSIS provides a standardized approach to automatically
completing the "handshake" and Internet-protocol address assignment between the
modem and the headend once the modem and NIC cards are hooked up to the cable system.

But the service still requires end-users to call
customer-service representatives and provide them with personal data, which must then be
manually input by the CSRs.

"We would like to see an evolution to online
registration by the end-user," Gun said. This could be done at the point of purchase
or through any standard dial-up connection to a special Web site established by the
operator, he noted.

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