Among worldwide residential consumers, digital subscriber lines (DSL) will overtake cable modems next year as the most popular high-speed, or "broadband," method of accessing the Net, according to a report released today by market research firm Cahners In-Stat Group.
Cable modems are expected to maintain their lead in North America, however, until 2002, Cahners reported.
Digital subscriber line technology allows a phone company to upgrade a traditional telephone line to handle voice as well as data transmissions. Cable technology, on the other hand, uses fiber-optic cables generally used for TV broadcast to shuttle high-speed Internet information to homes or businesses.
Hundreds of companies are scrambling to deliver faster Net connections as consumers clamor for more speed and richer online content. High-speed services, which offer a constant connection to the Internet, are expected to help boost e-commerce and expand the use of new media online, such as streaming video and music.
Although wireless and satellite options are making ground in the broadband market, cable modems and DSL are clearly the market leaders, according to experts. Cable claimed an early lead by primarily serving home users.
Because many local phone companies are still in the early stages of ramping up their own DSL offerings, some analysts doubt the technology will attract more customers than cable anytime soon.
"I'm really skeptical of the prediction that DSL will overtake cable modems in North America given the lead they already have," said Michael Harris, president of communications market research firm Kinetic Strategies. "The DSL market is really still a mess from the (local phone company) perspective. They have to upgrade their networks like the cable operators, which was not part of the plan a year ago."
Kinetic Strategies estimates there are about 2 million cable-modem subscribers in North America. DSL claims less than 800,000 subscribers.
Harris also believes America Online, the world's largest ISP, will throw considerable weight behind cable modem technology now that it is acquiring cable operator Time Warner. AOL has also signed a number of deals with local phone companies to offer its more than 20 million subscribers DSL access. Yet those co-branded partnerships have yet to hit the market.
In spite of the promise of DSL, the technology has been hampered by false starts, poor installation and announced deals which have yet to come to fruition. Many consumers have complained about long waiting periods to have the coveted service installed, while many others have been disappointed to find out they live too far from the phone companies' equipment to get DSL at all. DSL is sensitive to distance.
At the same time, AOL promised a major DSL push by partnering with several major Baby Bells but has yet to deliver.
Excite@Home, the world's largest cable-based broadband service provider with more than 1 million customers, has long believed that cable modems provide the best technology for offering low-cost, high-speed Net access to mass market consumers.
But Excite@Home recently revealed plans to offer its Net access service via DSL in addition to cable modems. Company executives have said DSL will allow them to offer service in areas where their cable partners don't own networks.
"Outside of our cable footprint we are looking to explore other means of high-speed Internet. We will deliver high-speed Internet access over any platform that will provide an affordable, reliable service to consumers," said an Excite@Home spokeswoman. "We're looking to bring the @Home service to consumers worldwide."
Other industry players such as Web portal Yahoo have maintained an independent stance on broadband services, not yet embracing any particular technology.
Cahners believes low-cost voice-over-DSL service, in which subscribers can receive multiple virtual phone lines using just one physical digitized wire, will also create high demand for DSL, marking the main reason DSL may soon surpass cable.
Others agree voice-over-DSL will soon take off, driving DSL deployment. In a report released last month, U.S. Bancorp Piper Jaffray analysts said that this year would be the time for the technology to take off.
"We believe voice-over-DSL deployment is poised to explode in 2000," an analyst report read.
The investment bank predicts that the Baby Bells will begin deploying DSL-based voice in residential markets in 2001.
A handful of DSL start-ups have targeted the business market, which garnered smaller numbers but higher profit margins. But a regulatory win last year, the renewed strategic commitment by the Baby Bells, and a recent round of price cuts have boosted DSL use among consumers.
Piper Jaffray estimates 2.9 million voice-over-DSL lines will be in use in the United States by 2002.
In a separate study released today, Cahners also predicted the adoption of video-over-DSL services will contribute to the explosive residential growth of digital subscriber lines. Cahners estimates 23 million households worldwide will subscribe to a DSL-based television service by 2005.
Although cable has done a good job of deploying service quickly on newer systems, future deployments will first require expensive upgrades, leading Cahners to believe cable deployments may slow somewhat.
"Cable has hit, to some degree, a wall until they can upgrade the rest of their networks," said Shannon Pleasant, a Cahners analyst and author of the study. "We're not saying that cable goes away. There's plenty of subscribers to go around."