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Microsoft: Cable Net access savior?

Microsoft's $1 billion Comcast investment may encourage other computer companies to funnel cash into the cable Net access industry.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
3 min read
Cable companies have been working to upgrade their systems for Net access since 1995.

But in a single $1 billion day, observers are already saying that Microsoft (MSFT) will force the industry to follow through on an effort that has so far been gradual at best.

"I believe the demand for broadband infrastructure is greater than most people think," Microsoft chairman Bill Gates said in a telephone press conference today. "The cable industry will be the primary way to get connected TV."

If that is true, cable companies that want to upgrade their systems to handle two-way data transmission must commit to enormous spending for infrastructure improvements, not to mention new marketing plans.

A report by market research firm Kinetic Strategies says it costs cable companies an average of $200 to $250 per subscriber to set up Net access services. And according to the study, until now, most cable companies have been cautious about committing that kind of money.

Internet slowdowns and latency in online networks have frustrated many high-technology companies, including Microsoft. They want to upgrade networks to handle the rich multimedia and interactive features that the latest software and computer chips now make possible. "We have been the slow part of this equation," conceded Comcast president Brian Roberts at today's press conference.

He added: "We hope that one of the byproducts of this is that it will galvanize all our colleagues in the cable industry to reassess many of the broadband possibilities and will accelerate and expand the marketplace of opportunities."

Now that Microsoft has given Comcast a $1 billion kick in the pants, cable companies may find cash flowing in from other PC companies.

"There's no question other technology investments may follow," said Christopher Dixon, an analyst with PaineWebber. He pointed to companies like Oracle and Cisco as other examples of technology leaders that might want stakes in cable companies.

David Goldsmith, an analyst with the Buckingham Research Group in New York, said Microsoft competitors will want to jump into the investment fray in fear of being left behind by some new industry trend.

"Guys that compete with Microsoft will have to look at this investment and their deal with @Home and say, 'These guys are developing the next standard and I should jump in,'" he said. Under a recently signed deal, @Home customers will be able to get Microsoft Network for a special rate of $6.95 a month starting in the third quarter.

Microsoft's investment in Comcast also validates cable as a high-speed choice for transmitting data, as opposed to such competing technologies as ISDN and ADSL. "Microsoft has anointed the infrastructure," Goldsmith said.

That vote of confidence was a much-needed one. Other technology giants, most notably Intel, have already made it clear that they think ADSL--a networking protocol that runs over regular copper phone lines--will pave the bandwidth road to the future, not cable modems.

And some of the cable companies that have managed to put the infrastructure in place haven't necessarily met unlimited demand.

@Home started offering cable access services late last year. Analysts had expected huge pent-up demand for such services, but the company has signed up only 5,000 paying subscribers to date.

The Kinetic study, based on interviews with industry executives, found that all cable operators together had signed up only 19,000 paying subscribers by March 1--despite the fact that roughly 2 million homes could sign up right now for such high-speed cable systems.

The study, however, predicted that 197,000 modem customers would sign up by early next year and 1.6 million by the year 2000.

These are the customers that Microsoft wants to be able to reach through a channel like Comcast. If its competitors and partners also start funneling resources towards this fledgling industry, the pace may pick up for establishing Net services running over cable.

Other cable operators were quick to point out that Microsoft's investment validates the potential of high-speed Net access over cable. "Bill Gates recognizes the value that broadband cable distribution systems offer in their ability to deliver the video, data, education and interactive products and services demanded by consumers throughout the world," said Heather O'Mara, executive vice president of Jones Internet Channel, in a statement.

Internet news editor Jeff Pelline contributed to this report.