World Telecommunication Day 1999 |
Consumers have long been promised an Internet rich in multimedia and interactivity
the world delivered to the desktop. But so far, most home users still depend on low-speed, unreliable dial-up connections that deliver data rates too slow for high-end video and audio content. What are the alternatives, and why are the 80 million or so on-line Americans not rushing to sign up?
For most households, the choice is between broadband modem access over cable or digital subscriber line (DSL) supplied by a local telephone service provider. Cable modems run at between 10 megabits per second (Mbps) and 30 Mbps downstream and 128 kilobits per second (Kbps) and 10 Mbps upstream. DSL uses multiple audio tones to carry data over standard copper phone lines at a maximum of eight Mbps downstream and usually several hundred Kbps upstream.
A survey of 2,000 households last year by Yankee Group of Boston found that 41 percent of dial-up subscribers were ''very interested'' in faster access, and 36 percent were willing to pay around $40 a month for the service. ''It's now up to the cable operators and telephone companies to respond,'' said the Yankee Group. Yet service providers are only just beginning to address demand.
DSL was stalled until recently by a perceived lack of interest from the regional Bell operating companies. The dominant local phone operators saw the high-speed data service as a direct threat to their highly profitable leased-line services for small businesses. As a result, they were in no hurry to install additional DSL equipment at their exchanges.
But growing pressure from a new breed of DSL competitors, such as the California-based Covad Communications and Northpoint Communications, has forced a change of attitude. Now, Bell Atlantic and SBC Communications are aggressively promoting DSL to the public, and GTE has formed a partnership with DSL ISP. Last month, Earthlink and US West announced a DSL-on-demand service at 256 Kbps for less than $20 a month. The on-demand option, as opposed to always on, reduces US West's capital costs as it only needs to supply enough capacity to support peak traffic loads.
But the Bells are limited by the need to install DSL equipment at every local exchange. ''There's a limit to how fast their personnel can do that,'' says Joe Laszlo, an analyst with Jupiter Communications.
In the meantime, cable operators have seized the advantage, winning 1.2 million subscribers by the end of this year - more than twice that of DSL - according to Jupiter. Jupiter expects cable to remain consumers' broadband medium of choice.
Total broadband revenues in the consumer market may reach $3.8 billion by 2002, up from $418 million in 1998, the research company says. Yet only 20 percent of U.S. households, or 11.2 million subscribers, will have broadband access by 2002.
The current excitement ''may be a little bit premature,'' Mr. Laszlo acknowledges. ''There will be a lot of price sensitivity as consumers consider broadband connection.'' The primary application for many home users is e-mail, he adds, which gains no benefit from high-speed access.
With DSL prices falling, cable operators may have to consider broadening the number of Internet service providers (ISPs) they deal with in order to bring their own costs down.
Cable Internet service is currently dominated by two providers: Road Runner and Excite@Home. Both will be affiliates of AT&T if its buyout of MediaOne Group is approved by regulators. The telecommunications giant already holds a 26 percent stake in @Home, and the MediaOne deal gives it part ownership of Road Runner. AT&T now says it is rethinking its relationship with @Home, however, a reflection, analysts say, of its reluctance to get involved in content.
Even so, AT&T's growing dominance in the cable market gives it formidable power as the gatekeeper of the broadband local loop. MediaOne, along with earlier acquisition TeleCommunications Inc. (TCI), will give it control of over 60 percent of the U.S. cable market, and ISPs such as America Online (AOL) are fiercely lobbying to force the telecommunications giant to allow rival ISPs access to its subscribers.
The Open Access Coalition aims to convince state authorities to impose open access conditions on AT&T in return for approval of the TCI and MediaOne mergers.
So far, its arguments have won support in Portland, Ore. and Broward County in Florida. San Francisco, Denver and Minnesota have postponed final decisions until the federal courts have had their say on the issue.
But regulators, including the Federal Communications Commission, are considered unlikely to step in, preferring to let competition develop naturally. AOL, with nearly 15 million U.S. subscribers behind it, is expected to compromise and cut some kind of deal with AT&T.
''Even the Open Access group will pull back from the city-by-city approach,'' Mr. Laszlo says, since the best that could be achieved is different rules in different states. ''They need one national policy.''
Sheridan Nye