Taking digital services to the masses

Standards-compliant retail cable modems are set to roll out in large numbers in early 1999, with the promise of bringing fast Internet access to large numbers of consumers. Cable operators also are looking to provide IP telephony, digital programming, and other interactive services.

But the industry is facing competition from phone companies, Internet service providers, and the competitive local exchange carriers (CLECs) over digital subscriber line technology (DSL), which allows high-speed Net access over copper wires. Other challenges to service stem from digital broadcast satellite (DBS) system operators such as PrimeStar and DirecTV.

So cable executives are looking to make their moves soon.

The cable industry will meet December 1-4 for its annual conclave at the Anaheim Convention Center. The Western Cable Show is presented by the California Cable Television Association. Organizers are expecting one of the largest crowds ever, with more than 375 exhibitors.

The Western Show will feature panelists and sessions addressing HDTV, IP telephony, and video-on-demand, as well as Federal Communications Commission regulations affecting the cable industry.

"The Western Show is going to be far superior to Comdex in terms of announcements," said Sean Kaldor, vice president for consumer device research at International Data Corporation. "We're going to see stuff from WebTV, we're going to see [multiple system operators] announcing partnerships, and we'll see more solutions to make cable modems cheaper and better."

Retail offerings such as Microsoft's WebTV were quick to market, but will only account for a small portion of the consumers, Kaldor said.

The proliferation of cable modems based on the new Data Over Cable Service Interface Specification (DOCSIS) will be high on the agenda at this week's show, observers said.

CableLabs, a nonprofit industry consortium, hopes to certify the first modems for DOCSIS compatibility by January--already later than some in the industry had wanted.

"We'd hoped we'd have certified units out there for the Christmas season," said Sandy Colony, a spokeswoman for Road Runner, the high-speed Net-over-cable service operated by Time Warner and MediaOne.

Industry experts said stimulating the retail market is vital for the cable industry in 1999, especially before DSL gets a strong foothold in the marketplace.

There are between 400,000 and 500,000 cable modems in use in North America today, but analysts expect that number to double each of the next two years.

"The overall cable modem market should really pop next year," said Patti Reali, a cable analyst at Dataquest. "The window of opportunity will be small. Cable has had a little bit of a lead on DSL."

Some analysts are concerned, however, that all the changes in the cable industry are confusing for consumers. Some may purchase a DOCSIS cable modem for use with their local cable operator's Internet offering, while others will continue to lease modems from cable companies for a couple of years. Cable operators will have to work out pricing and service strategies that cover the range of customer needs.

Reali expects 1999 to bring new applications such as videoconferencing and, later, IP telephony. "Broadband data applications will evolve soon," she said.

Executives at Road Runner, meanwhile, see content as the key to expanding cable's reach with the masses.

"We'll continue to work with content providers to develop broadband content, because that's what will grow our business," Colony said. "The early adopters just want to do their surfing at faster speeds, but you need content as you move into the mass market."