Cable access: Slowly but surely

In the race to provide consumers with high-speed Net access, the cable television industry is acting more like the tortoise than the hare. But the race is far from over.

That's the finding of a new study on cable modem use by Kinetic Strategies, an industry consulting firm. It bolsters other findings on the strategy, which aims to provide Net access by plugging cable systems into user's personal computers.

The study, based on interviews with industry executives, shows that cable operators had captured 19,000 paying subscribers by March 1, even though high-speed cable systems pass into some 2 million homes. It predicts that the systems will have 197,000 modem customers by early next year, 1.6 million in 2000, and 3.2 million in 2002.

Providing Net access can be a moneymaker for cable TV operators, the study predicts. Cash flow can turn positive by the third year of operation, with a 77 percent rate of return for modem services during the first five years.

There are roadblocks, however. Only ten percent of U.S. households have access to two-way cable systems, and cable operators increasingly are reluctant to shell out the $200 to $250 subscriber investment in upgrading their systems.

"The lack of ubiquitous cable system upgrades is a major limitation in the widespread deployment of two-way cable modems," states Kinetic Strategies president Michael Harris. "For at least the next five years, local cable systems and their subscribers will be divided into a world of return-path haves and have nots."

The so-called telephone return-path system lets users receive data over cable networks, allowing for speedy delivery of video and audio. But they must send data, typically email, over slower phone lines. Cable operators see the system as a way to offer high-speed Net access while they wait to upgrade their networks to two-way cable.

Among the study's other findings:

Cable systems may be charging too little for modem service. Higher prices will have relatively small impact on penetration.

Cable modem makers, led by Bay Networks and Motorola, will ship 192,000 two-way modems this year, growing to one million per year by 1999.

Time Warner passes into the most homes of cable system operators, but Continental Cablevision, Comcast, Cox, and Tele-Communications Incorporated. (through the @Home Network) also are industry leaders. By year's end, Time Warner will be offering two-way cable modem service to 4.5 million households.