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Cable modems fight for lead

The cable television industry, now a more than $30 billion per year business, never has been known for its subtlety.

LAS VEGAS--The cable television industry, now a more than $30 billion per year business, never has been known for its subtlety.

Industry pioneers, such as Time Warner vice chairman Ted Turner and Tele-Communications Incorporated chief executive John Malone, are about as no-nonsense as they come. They are unabashed about laying out grandiose schemes, such as promising hundreds of TV channels or movies on demand, even before they are technologically feasible.

So it should come as no surprise that the industry has taken a characteristically brazen approach to promote its latest product: high-speed Internet access to PCs via cable systems. Although barely 60,000 people have signed up for the service, executives are busy pitching Wall Street on the idea that this nascent technology will jump-start a moribund industry.

"Cable operators have always been known for their showmanship," said Michael Harris, president of Kinetic Strategies, an industry consulting group. "Now they're looking for ways to combat flattened revenue from their core business, and high-speed Internet access is at the top of the list."

More than 4.5 million homes are eligible to receive two-way cable modem service in North America, according to Kinetic Strategies. It predicts that the subscription base will grow to 197,000 next year, reach 1.6 million households in the year 2000, and top 3 million in 2002.

The launch of cable-modem service has been rocky. It has been marked by delays, fights over technical standards, cutbacks in upgrading cable TV networks, and criticism that this regulated monopoly lacks enough marketing know-how to execute its plan. Cable TV is notorious for providing indifferent service, many consumers contend.

But cable-modem service providers say business is starting to blossom. @Home, whose owners include Cox Communications, Comcast, TCI, and Rogers Cablesystems of Canada, says it has 26,000 subscribers. Time Warner's Road Runner service says its total stands at 20,200, and MediaOne Express (a subsidiary of US West Media Group) says it has signed up more than 10,000 people.

"We're running well ahead of what we had hoped to achieve," said Road Runner president Tim Evard, who predicts that his service could turn an operating profit within three years. For the industry as a whole, "it's only an issue of how quickly we can upgrade these cable systems."

This week, Road Runner launched in El Paso, Texas, part of a plan to roll out in ten cities in its first full year of operation.

In another barometer of industry prospects, the money-losing start-up @Home managed to go public in July, raising more than $90 million. Its stock was offered at $10.50, and now is trading at almost double the price despite attracting some naysayers on Wall Street. Since then, Intel's interest in @Home has perked up: It received a warrant to acquire more stock in the company.

Microsoft also is bullish on cable and PCs. It already has plunked down $1 billion for a stake in Comcast and is expected to invest more money in the industry.

The cable-modem craze is not limited to North America. More than 40 cable-modem trials or rollouts are under way internationally, from Argentina to Switzerland. In Australia, for example, Telstra, the country's largest telecommunications carrier, is rolling out high-speed Net access via cable (affectionately dubbed "Big Pond Cable Internet") in the biggest cities, such as Sydney and Melbourne.

"Cable modems will win the lion's share of the North American residential access market, growing to an installed base of more than 7 million units with unit prices falling below $150 by the year 2000, more than four times the residential DSL [digital subscriber line] base," according to a recent study by Forward Concepts, an industry consulting firm. "Worldwide, cable is forecast to beat DSL as well, but not by as commanding a margin."

Cable-modem service offers big benefits compared to other technologies such as DSL and satellite, according to some analysts. At the top of the list: speed and price.

@Home, for example, says it transmits data at speeds up to 100 times faster than a standard 28.8-kpbs modem. It typically runs at speeds of 1.5 to 3 mbps, while US West's newly launched DSL runs at up to 1.5 mbps and ISDN (integrated services digital network) runs at 128 kbps. As for price, @Home typically charges $40 to $45 per month, with a $100 to $175 setup fee. (The cable modem rental fee is included.) By contrast, US West is charging $60 per month for DSL at speeds of 192 kbps, plus a $200 setup fee.

The service also has the "always on" feature, so users don't have to dial any numbers to access the Internet. Another benefit: no telephone toll charges or second phone lines.

To crack the mass market, the companies are making their services easier to use and beefing up their content offerings. "When you talk to consumers, they don't look at the product simply because it's fast," said Dean Gilbert, senior vice president and general manager of @Home.

@Home has inked deals with Microsoft Network, CNN, and others on the content side as well as Amazon.com on the e-commerce side, and soon is expected to announce deals for multiplayer gaming. It also plans to launch a feature by year's end that gives users ready access to personalized information such as stock quotes, sports scores, and local weather reports, before they begin surfing the Net. @Home's strategy: to provide more "out-of-browser experiences," as one manager quips.

Road Runner also is gearing up to announce a spate of content partnerships, Evard said. It also is planning a business-oriented product, similar to @Home's offering, @Work, he added.

But despite the benefits, the services still have drawbacks. The chief one: the ballyhooed breakneck speeds are not guaranteed. That's because the network is shared by other users, so speed rates could decrease as others log on to the service. With DSL, the lines are dedicated, potentially making the speeds more reliable.

In addition, some cable-modem subscribers worry that their computer files are at risk of being read by strangers when they log on to the network. The vulnerability surfaced last month when @Home users activated the file-sharing features in Windows 95 without protecting those files with passwords. The company responded by updating its software to prevent users from sharing each other's files without permission.

Netizens also have criticized the cable-modem providers for mediocre customer service. One irate consumer started the "@Home Sucks" Web site to protest installation troubles. (When the problem was fixed, he removed it.) But some @Home and Road Runner users continue to complain about customer service.

Telco cable-modem providers aren't immune, either. "Whew! What a horrible experience," complained one GTE customer. "I was disappointed by how slow the cable modem was." Another home page has been erected, dubbed "Greedy Telecommunications Empire."

Providers say they are working hard to meet their customers' demands. They also say their "churn" rate, which measures the number of customers who cancel as well as subscribe, remains low. As Gilbert put it: "I think it's forward ho."  

Go to: DSL: New kid on the block