Cable-Modem Count Speeds Past 200K

Author:
Publish date:

It's still early, but a sizable spurt in cable-data
services suggested that the business segment is expanding faster than most MSOs
anticipated.

Driving the expansion have been word-of-mouth buzz about
cable-modem speed and swift moves to garner public awareness through publicity campaigns
nationwide.

Judging by the subscriber counts reported by the top three
high-speed-data suppliers, total modem penetration in North America is already past the
200,000 mark. That's more than double the subscriber count recorded at the end of the
year.

And by all indications, the next four months could bring
another doubling.

The calculation included 100,000 subscribers from @Home
Network and 75,000 from the combined sales of Time Warner Cable's Road Runner and
MediaOne Express, which are slated to merge soon. And the 200,000-subscriber figure
factored in at least 25,000 additional subscribers, including new sign-ups that have been
coming on at a rate of thousands per week at the top three MSOs. Also added in were counts
from operators that have been working on their own or with third-party providers.

Adelphia Communications Corp. is one example of an operator
working on its own. It now counts approximately 11,000 high-speed-data customers, said
Jorge Salinger, Adelphia's senior director for digital-service networks.

"We're signing up new subs at a rate of about
1,000 per month," he added.

There have been fewer new-market launches so far this year,
compared with the same time period in 1997, but growth in existing markets is making up
the difference -- and then some.

"In deployed markets where we've built enough
traction, [the growth driver] is word-of-mouth, plus the cable systems are getting more
comfortable with installs and operational issues," said Dean Gilbert, senior vice
president and general manager of @Home.

Some systems are also picking up the pace of marketing,
Gilbert said.

Projecting where the customer base will be for the
industry's high-speed-data services by year's end is a tricky business, given
the unpredictable force of word-of-mouth and the fact that the remainder of the year will
witness a pace of new launches far outstripping that of the first four months.

TCI GEARS UP

TCI.NET, the high-speed-data unit of Tele-Communications
Inc., is geared up for heavy rollouts in the second half of the year, for example.
Simultaneously, smaller MSOs are just now getting into the business.

@Home plans to hit the 350,000-subscriber level by
year's end, Gilbert said. And Road Runner has been signing up subscribers at a pace
of 3,000 per week, according to spokeswoman Sandy Colony. If sustained, that would add
108,000 customers to the combined Road Runner/MediaOne Express count, just from the Road
Runner side, by year-end.

If @Home and Road Runner add another 250,000 to the current
total, the year-end industrywide count could weigh in at a level closer to the more
optimistic projections offered by various research organizations, such as Paul Kagan
Associates Inc. Kagan, which is known for being bullish, projected a year-end count of
close to 1 million data customers.

Forrester Research anticipated that the number will be
about 700,000, in contrast to the 200,000 or so anticipated by Dataquest Corp.

Dataquest -- which, with its conservative projection of
80,000 homes, came much closer to predicting the 1997 subscriber mark than Kagan did --
remained cautious about cable's ability to dominate the high-speed-data picture for
long.

"It's easy to go from 100,000 to 200,000, but
difficult to go from 200,000 to 2 million," said Lisa Pelgrim, senior analyst with
Dataquest.

ADSL LOOMS

Once the telephone industry has so-called splitterless-ADSL
(asymmetrical digital subscriber line) service ready to go, the picture for cable in the
consumer market could quickly change, Pelgrim said.

Telcos, working with several computer companies and
telecommunications vendors, expected to complete specifications for "ADSL.Lite"
by year's end. That would give them a way to offer data at speeds of up to 1 megabit
per second, without requiring installers to add in-home wiring to the personal computer
from a splitter mounted at the drop connection to the house, as is required now.

But whatever the long-term potential of ADSL is, the
telcos' high-profile push in this direction might be a blessing in disguise for
cable.

"The name of the game is getting there first,"
said Michael D'Avella, senior vice president for planning at Canada's Shaw
Communications Inc. "We're taking the DSL threat very seriously."

Shaw -- with 750,000 homes passed by data-ready plant at
the end of March, heading for 1.2 million to 1.4 million by year's end -- stands as a
paragon of what can be done with an aggressive pursuit of the high-speed-data opportunity,
said Michael Harris, senior analyst at Kinetic Strategies Inc.

"Shaw is an example of an MSO that totally ripped the
head off of this business," he said.

In another instance of aggressive deployment, Adelphia used
both one-way and two-way cable modems to put service in front of 1.5 million households,
representing 60 percent of the MSO's total franchise areas.

"We'll be at 2 million homes passed by the end of
the year, and we will reach 100 percent [of homes passed companywide] next year,"
Salinger said.

BEYOND 'GEARHEADS'

While much of the industry's success in building an
initial customer base was attributed to the hunger of early adopters for bandwidth, it is
clear that the cable-modem phenomenon is moving well beyond what Gilbert called the
"gearhead" phase.

He cited the experience of @Home's 1,000th customer as
typical of what's happening in the marketplace, noting that the individual "was
pretty much a novice, but she was complaining that since she got @Home, she hadn't
been able to leave the Internet."

Road Runner president Tim Evard said that a good place to
look for a sign of where the data business is likely to go when operators give it more
attention is Time Warner's system in Portland, Maine, where Road Runner penetration
stands at 7 percent of homes passed after one year.

"In most areas, we had to throttle back against the
cash-flow needs of the [cable] company, but we didn't throttle back in
Portland," Evard said.

Operators are also finding on-site demonstrations at
computer stores and shopping malls to be a low cost, high-yield way to attract customers.

"We're finding that better than 85 percent of the
people who are interested in online services and who get a chance to see cable modems in
operation will sign up for the service," said William Cullen, chief operating officer
of Online System Services Inc., a provider of turnkey support for smaller operators.

Cullen's firm and others like it represent another
force that could drive market penetration faster in the months ahead.

@Home is preparing to take advantage of the
"gotta-have-it" phenomenon in a big way, starting with a co-marketing
arrangement with ComputerCity stores and moving to a 12-mall tour this summer that will
put the service in front of 360,000 shoppers, according to the firm's executives.

Road Runner, MediaOne and many other entities are pursuing
variations on this theme, some of which involve small computer retailers, as well as
national chains.

Related