Cable Widens Lead In High-Speed Race

Less than six years after passage of the Telecommunications Act of 1996,
digital subscriber line (DSL) coverage nationwide is floundering while
cable lives up to deployment expectations, according to numbers in a Yankee
Group report released Thursday.

The report, “Residential Broadband: Provisioning Cable Modem Service,”
predicts 75 percent of all homes in the U.S. will support a broadband
connection, be it DSL or cable Internet, by year’s end. Numbers were not
available for other broadband options like fixed wireless or satellite service.

Broadband providers, as an industry, have been swift to ramp up their
deployment schedules to meet the anticipated demand for high-speed Internet
access, a strategy that’s a net gain of 15 percent over last year’s
broadband footprint.

Michael Goodman, author of the report and a senior analyst at the Yankee
Group, said the next step for network owners is to get paying customers
lined up to the service and make provisioning less expensive.

He said cable operators spend an average of $360 per customer installing
equipment and getting the customer online. With more self-installs and
better technician training, he said, cable companies will be to increase
their efficiency.

“Building out the network to make broadband available is only half the
battle,” Goodman said. “Success will increasingly be driven by the network
operators’ ability to lower the cost of hooking up individual households
for broadband service.

Mike Luftman, a spokesperson for the second-largest cable network in the
country, Time Warner Cable, said that the AOL Time Warner
subsidiary has taken steps to ensure their high-speed Internet service
compares favorably over DSL.

He said AOL/TW has three selling points that have brought in large numbers
of broadband wannabes. They are:

  • Using networks that have been completely upgraded, so that when
    service becomes available in an area, every home passed by upgraded cable
    can sign up for the service immediately, with no weeks-long wait to see if
    the line is qualified for service as with DSL;
  • Offering higher speeds at a lower price than DSL. Road Runner is
    $44.95 per month for a service with 1.5 mps downstream and 750 kps
    upstream. In many cases DSL’s cheapest service is several dollars more, yet
    offers lower speed; and
  • Not forcing people to sign one-year contracts, offering to simply
    disconnect service at no cost after 30 day.

The one figure in the report that should have many worried is the fact that
only 45 percent of the houses passed by the end of 2001 will feature DSL,
an alarming fact when you consider the growing popularity of high-speed
Internet access and its intense competition with cable operators for
broadband subscribers.

This apparent slowdown in the DSL industry could have a negative impact
on the entire Internet service provider (ISP) industry.

Competition between providers keeps pricing down and prevents many from
getting away with extravagant service flaws, a checks-and-balances act
between cable and DSL that has been the benchmark of Federal Communications
Commission Chairman Michael Powell’s policy in the telecommunications industry.

Cable operators, meanwhile, have been busily upgrading their networks to
meet the demand for broadband, passing 66 percent of the houses in the U.S.
and showing no signs of slowing down.

At this rate, they will blanket the country long before DSL makes
significant headway, especially as telephone companies slow down deployment
in the less-populated Tier 2 and 3 markets (populations under 100,000,
generally speaking).

Regional Bell operating centers (RBOCs) around the country have backed down
lately from promises to provide widespread DSL availability, cutting back
deployment and calling for a revision to regulatory constraints they say
hinder their broadband deployment.

SBC Communications , which had promised to provide 80
percent of its telephone customers with DSL by 2002 as part of its
arrangement to acquire rival Ameritech, has approximately 1.2 million DSL
customers, but plans on slowing down its Project Pronto
deployment. Officials have already pushed the deadline for its first phase
back to 2003 and have effectively halted future plans for the second phase.

Qwest Communications , Verizon Communications
and BellSouth have also slowed down their deployment in
less populated areas of their operations, saying it’s too expensive to
deployment equipment in relatively underserved areas. All three have
experienced revenue losses in the in the recently closed third quarter,
prompting their slowdown.

One analysis outfit says the timing couldn’t be worse for a DSL slowdown.

Cahner’s Instat, predicts that the number of broadband subscribers, which
hovers at a little under 21 million customers nationwide, will exceed 84
million in the next four years. But if DSL doesn’t make headway soon,
analysts say, cable could walk away with a lion’s share of that number.

Instat findings also concur with Goodman’s report, finding cable will
outnumber DSL for the foreseeable future.

Luftman is quick to point out that DSL isn’t out of the picture yet, so
cable needs to take advantage of the current lead.

“DSL should not be discounted as a competitor,” Luftman said. “The RBOCs
do have very deep pockets. Even if they have slowed DSL deployment, it is
no doubt temporary. In the meantime, we will grow the cable modem business
as quickly as we can.”

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