After the Hype, Modems Slow to Roll

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With two months gone in 1998, the cable industry appears tobe inching forward, rather than roaring forward, with its marketing of data services, justas competitors are turning up the heat.

A number of factors are contributing to what industryexecutives on and off the record described as a frustratingly slow pace that they arehard-pressed to do anything about.

These reasons include: delays imposed by mergernegotiations among the leading providers; a desire to deploy standardized cable modemsthat are not yet in the marketplace; and limitations on marketing efforts imposed by thereach of upgraded plant in any given market and by the costs of beefing up installationand customer-service crews to support a faster sign-up pace.

Last month, Cox Communications Inc. CEO James Robbinsvoiced the concerns that many executives have over the pace of cable's data push whenhe suggested that penetration of @Home Network's service in Cox's Orange County,Calif., market was disappointing so far.

He said more had to be done in marketing and in adding newfeatures to ensure that the service gets to 10 percent to 12 percent penetration of onlineusers' homes "fairly quickly."

"We've all purposefully been less than pushy now,knowing that every modem installed now is a proprietary modem, and that's strandedcapital," said Nick Hamilton-Piercy, senior vice president of Canada's RogersCablesystems. "If we totally stopped, the investment community will say thatcable's let us down again, but we can be moderate."

Said a U.S. MSO engineering executive, asking not to beidentified, "I'm not planning to really tweak my data-deployment plans until Iknow for sure that I can get interoperable modems."

So far, with uncertainties surrounding the timing and costsof product still to be resolved, no orders for standardized cable modems -- which are duein the market by year's end -- have been announced.

DSL IS COMING

Meanwhile, what once seemed to be an ever-recedingpossibility for the use of telephone wires in delivering high-speed data has suddenlybecome an imminent reality involving not just the telcos, but an expanding base ofcompetitive local-exchange carriers and Internet-service providers.

A new standards initiative backed by computer-industryinterests has generated the biggest headlines surrounding the use of DSL (digitalsubscriber line) technology to deliver data at speeds of 1 megabit per second and betterover telephone lines. Beyond that, though, the activity on the DSL front posing thebiggest concern for cable can be found in market launches that are under way around thecountry.

U S West Communications, Ameritech Corp., BellSouth Corp.and GTE Corp. have all begun services, with Bell Atlantic Corp. slated to follow suit bymidsummer. But the arena that offers the best snapshot of what's to come is probablySBC Communications Inc.'s territory in California.

There, not only has SBC subsidiary Pacific Bell launchedits own branded DSL service, but several ISPs using PacBell's wholesale DSL offeringor the DSL services provided by new CLECs are also providing high-speed access to thesmall-office/home-office and other business markets.

"We expect to roll out DSL services using CLECs, aswell as incumbent carriers, in many markets across the country," said Jim Southworth,director of advanced networking services and technologies at Concentric Network Corp.Concentric is a nationally operating ISP that delivers services at 384 kilobits per secondand higher using both PacBell's and Covad's DSL offerings in California.

In the San Francisco Bay area, customers will soon have asmany as six options for high-speed-data service, said Ian Aaron, president of ISP Channel,a Mountain View, Calif.-based start-up focused on turnkey high-speed-data services forsmall and midsized cable operators.

"The competitive window is definitely closing,"Aaron said. "This is a question of what it costs to acquire a data customer now,versus what it costs to acquire them after they've gotten an ADSL [asymmetrical DSL]modem."

Nor is the competition limited to firms offering servicesover wires.

CABLE'S BACKYARD

In Denver, for example, the first to market with high-speeddata is wireless cable operator American Telecasting Inc., which debuted its$69.95-per-month "WantWEB" data service last week. Next in line to serve Denver-- home to a handful of cable MSOs -- is U S West Inc., which said it will be in themarket by June with its "Megabit" data service, several months ahead ofTele-Communications Inc.'s @Home Network service.

One executive close to the companies said the effort tocomplete the merger of Time Warner Cable's Road Runner service with MediaOne'sMediaOne Express service, as well as a flurry of talks between @Home and Time Warner abouta possible merger, has inevitably put a drag on marketing efforts.

But the parties insisted publicly that the rollouts remainon track. "Things are moving along nicely," said Sandra Colony, spokeswoman forRoad Runner. "We have some announcements [about further rollouts] that we'll bedoing shortly."

Colony said Road Runner and MediaOne Express are stilltargeting mid-March as the time when key decisions will be locked down, such as where themerged entity will be located and who will run the company.

As for @Home, while the service has just added seven EastBay franchises in California to its base, the rollout pace remains a "mixedbag," said CEO Tom Jermoluk.

"Some of [our affiliates] are doing great, and I thinkthat there's a lot of desire on everybody's part," he said.

GIVING DSL A BOOST

The pace of cable data-service rollouts has buttressedconvictions among some computer interests that there will be ample opportunity toestablish a retail base for low-cost plug-and-play ADSL modems. Still, it is likely totake a year or more to get to a point where retail distribution of standardized"ADSL.Lite" product is possible.

"Cable modems are not taking off as quickly as wemight have expected," said Rod Schrock, vice president and general manager of CompaqComputer Corp.'s Consumer Products Group.

Compaq, along with Intel Corp. and Microsoft Corp., is adriving force behind the new Universal ADSL Working Group, which includes the majorregional Bell operating companies and DSL vendors in an effort to standardize a robust,self-installing version of DSL aimed at the consumer market.

DSL.Lite as a "retail event" could come as earlyas this Christmas, or it might not occur until sometime in 1999, Schrock said, noting thatCompaq and other computer suppliers could create an "overnight installed base ofhundreds of thousands or millions" of DSL modems.

But telcos have many issues to deal with as they push aheadwith DSL rollouts, even before they get to the point of agreeing on a standardizedapproach, noted Lisa Pelgrim, a senior analyst with Dataquest.

"There are distance issues [from home to centraloffice] and issues of how to run ADSL over digital loop-carrier systems, not to mentionthe amount of equipment that has to be installed," she said.

DSL REMAINS COSTLY

Nor are telco prices where they need to be, even when theservice offered is only 256 kbps, noted Joe Zell, president of U S West's InterpriseNetworking Services. At $40 per month plus $19.95 for Internet access, the 256-kbpsversion of the multispeed Megabit service is about $15 per month higher than it should be"to be really competitive with cable modems," he said.

Telcos also have to worry about what they can offer beyondspeed in efforts to capture a large consumer base. Here, they are well behind the cableindustry, where much effort has gone into developing consumer-friendly interfaces andmultimedia-enriched content that capitalizes on the power of high-speed access.

But the telco model is not cable's, which means thatjudging how telcos are doing in high-speed access requires a look at their strategies.

The template in this area is to be found in the newinitiative announced last month by U S West involving Microsoft, Sun Microsystems Inc.,Oracle Corp. and several other computer-industry interests. By equipping its network withsoftware and hardware conducive to content development across a vast array ofapplications, U S West anticipates that there will be plenty of activity aimed at givingconsumers and businesses value-added incentives to use its high-speed service.

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