Broadband Grows Amid Short-Term Fear

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Santa Clara, Calif.-The Cable Telecommunications Association for Marketing kicked off its first Broadband Opportunity Conference here last week against a bewildering conundrum.

The good news is that there is a growing base of broadband users facilitated by cable's near-complete two-way rollout. But the bad news is that the growth is happening at a time when the equity market is crucifying most things broadband- and Internet-related.

Vulcan Ventures president Bill Savoy, CTAM's opening keynote speaker, exemplified the blend of long-term promise and short-term despair. He defended broadband investments, but acknowledged that Wall Street has little enthusiasm for Internet stocks.

"The value seems to come when the bubble bursts," he said.

But the move to broadband is inevitable, he said, because "we know when consumers try it, they will want it."

He added: "Broadband is an entirely new platform that's a combination of superior speed, permanent connectivity and content richness."

The industry hasn't done a good job of defining broadband, which poses part of the problem in promoting it to consumers, panelists said at a Wednesday afternoon consumer-research session.

"The message that it's the Internet, only faster, is just not enough," Jupiter Communications senior analyst Joe Lazslo said.

Beyond high-speed, always-on access, broadband must mean "whole new applications," Lazslo said. The ability to bundle broadband content with access should give cable an edge over competing Internet providers, he suggested.

But Lazslo warned against promoting technology as the distinguishing advantage between cable modems and digital subscriber line services. He went so far as to say it's more important for cable-modem and digital subscriber line providers to agree to promote broadband as a category, rather than squabbling over platform superiority.

The back-and-forth backstabbing can dampen consumer confidence in the entire category and keep potential broadband customers out of the market entirely, he said.

"Some consumers are thinking of this as a Betamax versus VHS" shakeout and are waiting to see whether cable modems or DSL win out, Lazslo warned.

Jupiter's research estimates that there will be at least 29 million personal computer-based broadband homes by the year 2005, with cable holding a slight lead over DSL.

There are plenty of obstacles to broadband growth, Savoy said, and that has fueled the flight from Internet stocks and some broadband stocks.

"The providers are going to have to spend more time bringing the costs down," he said. Indeed, Jupiter's research shows 54 percent of consumers aren't willing to pay $40 for broadband-Internet service.

A key second issue is the need for creative thinking.

"I'm still looking for the killer app," Savoy said, as America Online Inc. found in narrowband with chat and instant messaging.

Of course, broadband is not limited to the PC. Cable operators also plan to add television-based broadband services to their lineups.

Internet to the television will appeal first to those homes that are already online, AT & T Broadband vice president of market intelligence Pete Gatseos said. Such services will bring incremental revenue per cable home and should also bring a modest lift to overall cable subscriber levels, he said.

PC-centric broadband customers tend to be willing to spend more for content than television-centric subscribers, Gatseos said. Games are one category of broadband content for which customers may be most willing to pay a premium, he said.

Interactive-television applications will also provide new revenue streams for operators.

"Video-on-demand tests very well," Gatseos said, though he noted that some of the reported demand for VOD may be overstated by consumers who "tend to think they can get any product ever made at any time."

Early VOD providers may soon need to make more room for competing video-streaming services.

Savoy was critical of established players bringing old business paradigms to the new broadband world. He said many Hollywood producers, for example, feel they can't produce compelling content without spending millions of dollars. Satellite and cable companies have been leery of video streaming, since it could cannibalize their business, he added.

"And dot-com companies can't imagine a model without a home page," Savoy said. "We're going to have to fall outside our comfort zone" to make broadband successful, he added.

Savoy said the Internet "gold-rush mentality," which spurred venture capitalists to pour hundreds of millions of dollars into unproven business plans, hurt the entire sector.

"Too much money spoiled us," he said, because business ideas were funded that wouldn't have seen the light of day in an earlier era.

"We did a great disservice by falling to the gold rush of the equity markets. The markets are about to reject the entire category. We're going to go through a reset."

Still, Savoy listed some glimmers of broadband's revenue possibilities. "New applications will drive technology adoption," he said, citing the increased amount of photo sharing going on in today's narrowband world.

Web cams utilizing PC and TV broadband connections are another possibility.

"Broadband will look more like
The Blair Witch

[
Project
] and less like
Friends
," he said.

For instance, channels 100 to 200 on cable systems may become part-time channels, or used for streaming media from Web sites, rather than alloted to traditional cable networks, he said.

Attendance at the conference was pegged at 650, officials said. CTAM said it had expected about 400 to attend.

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