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Bells step up Net services to compete with cable

Spurred by new competition and consumer demand for high-speed Internet connections, the big local phone companies are stepping up their focus on fast Net services.

Spurred by new competition and consumer demand for high-speed Internet connections, the big local phone companies are stepping up their focus on fast Net services.

And not a second too soon, analysts say. Faced with growing pressure from AT&T, a newly merged Sprint and MCI WorldCom, and other new local players, the Baby Bell companies perceive that their future rests in large part on their ability to bring their customers online.

CNET TV: Broadband battle
CNET TV: Broadband battle
SBC Communications recently announced a $6 billion investment plan that ultimately will make broadband Internet services available across 80 percent of its territory. Other Bell companies are trying different tactics, such as offering do-it-yourself installation packages in an effort to boost consumers' interest.

The new investments and marketing strategies are beginning to level the playing field in the contest between high-speed cable modems and the telephone companies' competing digital subscriber line (DSL) services. Firms from both ends of the high-speed spectrum are vying to become one-stop shops for voice, video, and Internet services--combined consumer markets worth well over $200 billion per year in the United States alone.

Analysts say the renewed focus is long overdue, however. Cable companies have been rolling out cable Internet modems for several years, and now have more than a million subscribers through services such as Excite@Home and Road Runner. AT&T is also getting into the Bells' local phone market with its planned cable telephone services--expected to be a serious threat to the local companies' bottom line.

"Ultimately, it's a response to the fact that AT&T says they want to own the customer, that they want to own the world," said Laurie Falconer, an industry analyst with TeleChoice.

Comfortable in the crossfire
The toe-to-toe battle between technologies ultimately serves the consumer well. DSL prices have come down precipitously this year, now hovering around $50 per month, and new investments are pushing download speeds and the technological potential of systems upward.

The big local telephone companies already went through one wave of ramped-up investment early this year. But already it's time for a second phase, SBC executives say.

"[Demand] is growing faster than we thought," said Steve Dimmitt, vice president of marketing for SBC.

Word of mouth is exceeding all expectations, he added. "We expected to reach 200,000 [subscribers] by the end of the year, and we thought a significant part of that would come from partners [like America Online]. But we're going to get close to that ourselves."

That demand, coupled with pressure from AT&T in SBC's local phone markets, has led to the company's $6 billion "Project Pronto" network investment.

The SBC expansion will be the most ambitious DSL project to date. Much of the funding will go toward upgrading more lines for basic high-speed service. But a considerable portion of it--the company isn't yet saying how much--will go toward redesigning the network, pushing high-speed fiber optic cable closer to neighborhoods in metropolitan areas.

This will allow the company to guarantee download speeds at least 25 times faster than the fastest dial-up modem, Dimmitt said.

That kind of speed means more than basic Internet access. SBC is also working on video-on-demand services that can take advantage of the new network, it says. The company is not ready to commit to full cable TV-like services, but will likely be able to offer full movies on demand to consumers by the end of next year, Dimmitt said.

US West, which still leads its local phone peers in DSL subscriber figures, already has a trial of video-on-demand services running and is experimenting with hybrid high-speed services that are cheaper than traditional DSL.

Bell Atlantic, which also has stepped up its DSL investments, is turning its attention to making the technology easy to use. It has partnered with 3Com to sell a "plug-and-play" high-speed modem service, which consumers should be able to buy at a computer store and set up themselves, eliminating the need for a technician's visit.

That company is also testing out a home network system to go along with its DSL connections. The service is designed to let users tie their computers together, easily allowing more than one system to take advantage of the high-speed pipe, the company says.

Even with the renewed focus on services, however, telephone companies have a long way to go to catch up with cable.

According to Yankee Group projections, cable modems will still outnumber DSL lines two to one by the end of 2001, though the new telephone firm campaigns may narrow this gap, analysts said.

"It's still early in the race," said Michele Pelino, a Yankee Group analyst who follows the high-speed Net market. "But cable modem companies have done a much better job of marketing their services at the local level."