FRAMINGHAM (04/24/2000) - The Internet of the future is based on everybody having blazingly fast access. So how do we get that broadband speed over the crucial last mile?
Three technologies - cable modems, digital subscriber line (DSL) and fixed wireless - are contending to supply much of this bandwidth. But none of them has yet emerged as the clear winner.
Handicappers say the two hottest prospects for last-mile technology are cable modems and DSL. Both use networks already in place and that, for all practical purposes, reach nearly all remote business sites and telecommuters between them.
Lagging behind is fixed wireless, still waiting for service providers to build the infrastructure they need to deliver services widely.
While all three access methods can supply multimegabit speeds, none is perfect:
Cable modems provide up to 10M bit/sec over a shared network. So if you are on a heavily used loop, your bandwidth plummets. Cable modem access costs about $40 per month.
DSL runs over regular phone lines but has distance limitations and is sensitive to copper wire quality. DSL access costs $40 to hundreds of dollars per month, depending on bandwidth and service-level guarantees.
Fixed wireless offers speeds up to 155M bit/sec, but weather can be an obstacle and there must be an unobstructed line of sight between broadcast antennas and customer sites. Some 384K bit/sec services cost about $150, and some providers claim to undercut local wired access by 30%.
Customers can weigh the options and pick their favorite, but chances are they won't have a real choice. Places where DSL, cable and wireless providers compete are still the exception.
"Service providers now are just trying to get customers, not take customers away from each other," says Jamie Mendelson, an analyst with The Strategis Group in Washington, D.C.
If you consider the number of potential broadband customers, service providers have barely scratched the surface. Total sales of cable modem and DSL services at the end of 1999 were less than two million lines - barely a statistical blip in a country with 146 million business and residential phones, according to Insight Research.
Based on that small sampling, cable modems hold a clear lead over DSL and wireless, but DSL looks ready to come on strong. Cable providers have 1.1 million modem customers, according to estimates by The Yankee Group. The same study says 300,000 DSL lines are in service, but other industry estimates are closer to 600,000. IDC, a market research firm in Framingham, Massachusetts, expects DSL to surpass cable modems in 2003, while Cahners-Instat Group says that will happen in 2002.
Wireless is in distant third with more than 40,000 links in 1999 based on service provider reports. That figure outstrips the IDC estimate of just 30,000 links for last year.
While providers have made a modest start, competition seems about to heat up, as services become more widely available. DSL customers will soar to 13.9 million by the end of 2002, Cahners-Instat says. Leaders are the regional Bell operating companies - owners of the phone lines - with more than half the current customers, The Strategis Group says.
Cable modem users will jump from about 1.5 million in 1999 to 8.3 million in 2003, Cahners-Instat says. Excite@Home and RoadRunner are the runaway market leaders with 97% of existing customers between them.
Fixed wireless hasn't gotten as far yet, but it is growing rapidly. Users are expected to spend $828 million this year on fixed wireless, nearly triple what they spent on the technology last year, IDC says. The big names are Teligent Inc. and WinStar Communications Inc., with Nextlink, Sprint Corp. and MCIWorldCom Corp. waiting in the wings with fistfuls of wireless licenses.
While this level of growth sounds impressive, some experts say wireless cannot keep up in the long run. "That is absolutely, positively not going to happen," says Tom Nolle, president of CIMI, a technology assessment firm in Voorhees, New Jersey.
Still, wireless will have its place, bypassing local terrestrial access to long-distance networks at T-1 speeds or slower for less than the price of a T-1, says Jim Lawrence, program director at Stratecast Partners in Mountain View, California.
In an attempt to broaden availability of their offerings, service providers are digging deep into their pockets to fund their networks.
The top seven cable carriers invested between $9 billion and $11 billion last year to upgrade their networks, according to The Strategis Group. That is on top of about $6 billion they spent in 1998. Some of that investment will bring cable networks' fiber backbones directly to business customers. Direct fiber represents yet another broadband access technology, but it is much less widely deployed.
"Cable doesn't go to most businesses today, but I expect AT&T to change all that," says Robert Larribeau, an analyst with consultancy RHK.
In the DSL arena, jumbo Bell company SBC Communications is pouring in $6 billion to upgrade its network so DSL can reach 80% of its customers by 2002.
Major competitive local exchange carriers focused on DSL, such as Covad Communications Inc., NorthPoint and Rhythms NetConnections, are also investing huge sums. It costs competitive carriers up to $250,000 or more just to get space for their DSL gear in RBOC switching offices.
Wireless carriers, for their part, have spent billions of dollars to acquire Federal Communications Commission licenses to use the airwaves.
These efforts have borne fruit for some customers who happen to live in areas where cable modem and DSL services overlap. Advertising wars have broken out over this.
For example, Pacific Bell Corp. sells DSL in areas of California where a variety of companies offer cable modem services. PacBell runs TV advertisements depicting suburban anarchy that stems from too many people vying for limited bandwidth on cable networks. The ads portray neighbors, desperate to keep their access fast, cutting cable lines to other homes, spray painting "Cable hog" on houses and shunning newcomers as they move in because they represent another drain on limited bandwidth.
Such images make for good TV, but they don't reflect what is really happening, says Ray Keneipp, an analyst with the Burton Group. "I don't think technologies compete with each other. Companies that employ these technologies compete with each other."
From the evidence, he is right. Service providers are mixing and matching their offers to reach as many customers as possible. They don't seem to care which of their services the customers buy, as long as they are buying broadband access.
AT&T Corp., for example, has staked its local access future on cable modems, spending more than $100 billion to buy and upgrade cable networks. But the carrier also spent $11 billion on TCG, a local fiber network in cities nationwide.
In addition, AT&T says it will fill in with DSL and wireless in areas its cable networks miss.
Similarly, Excite@Home Inc., the largest provider of cable modem service, says it will supplement its access network with DSL it wholesales from Rhythms.
Nextlink, a service provider that owns most of the licenses for wireless local multipoint distribution services, says it will sell DSL services to connect customers to its network.
Ultimately, it won't matter to customers what the access method is so long as it's fast, says Nick Stanley, an analyst with Communications Industry Research in Charlottesville, Virginia. "The fact that it's coming in on a dish from the rooftop or from a cable, they are not going to care," Stanley says.
But other analysts distinguish between the technologies. DSL is better suited to business uses than cable or wireless, says Brad Baldwin, an analyst with IDC.
"The Achilles' heel of cable is it's a shared network," he says. To mask that, some carriers are downgrading speeds to just 300K bit/sec, regardless of whether additional bandwidth is available. That way when more customers sign up and contend for bandwidth, existing customers won't see their service degrade, he says.
DSL, on the other hand, gives customers their own link back to the carrier's network. If the customers are willing to pay for it, they can get guaranteed bandwidth from end to end, Baldwin says.
Wireless, while pricey compared to cable and DSL (it costs $150 for a modest 384K bit/sec connection) can fill the gap when other technologies aren't available, RHK's Larribeau says.
For now, customers seeking fast access to the Internet will take what they can get and afford. But that is all about to change, CIMI's Nolle says.
Cable modems, DSL and wireless can all offer T-1 speeds at less than the cost of T-1 lines, breaking the access choke point of 56K bit/sec set by the fastest dial-up modems.
That leaves open a world of possibilities such as voice and data traveling over the same access line, access to entertainment on that same circuit and the ability to easily switch from one ISP to another.