The year the Net sped up--sort of

The telecommunications industry may remember 1999 as the year the Internet went supersonic. Hundreds of thousands of Net junkies across the nation got hooked to high-speed connections, whether over cable networks or digital subscriber lines (DSL).

Yet the market for broadband is just beginning to grow. Market researchers International Data Corp. predict that in just three years, roughly one-third of some 65 million homes in the United States will surf the Net over a high-speed connection.

Analysts say millions of future drivers on the high-speed Internet highway could translate to serious business for a number of Net-related firms. Internet service providers (ISPs) will benefit by providing those broadband connections. E-commerce companies are sure to cash in. And content providers even now are ramping up special multimedia portals specifically for high-speed surfers.

Yet the highway hasn't been altogether smooth. The specter of federal regulation, a slew of multibillion-dollar mergers and a quick slap of reality regarding how long it takes to build a nationwide broadband network have slowed the spread of high-speed services.

"The demand is shooting up logarithmically while supply inches up much slower," said Lisa Pierce, director of global telecommunications services at Giga Information Group. "I see 2000 as one year where we'll see better broadband coverage, but it's not going to be everything it could be."

"Consumers and businesses will still have to be patient," she said.

Still, high-speed services offered by cable companies have definitely seen their subscriber numbers jump this year. Net-over-cable firm Excite@Home, the current leader in cable modem access, had a strong 1999 despite some business challenges.

The company began the year with a blockbuster merger, acquiring Web portal Excite in one of the largest deals in the Internet's short history. Recently, Excite@Home topped 1 million customers and expanded aggressively internationally.

Yet the leader wasn't immune from service problems. Earlier this year, the firm faced a lot of heat for speed slowdowns on its network. Its largest shareholder, AT&T, stepped in to ease some consumer concerns.

Cable modem service provider Road Runner also outpaced many other broadband services, yet it remains without a permanent chief executive.

Although cable modem technology currently leads the broadband race, many analysts believe that the large number of deals this year has finally put DSL on the map.

In 1999, "DSL came into its own. [The year] 1999 finally proved that DSL is a viable technology," said Zia Daniel Wigder, director of bandwidth and access strategies for market research firm Jupiter Communications.

Analysts expect that DSL will now be more widely adopted as prices fall and service is more broadly available. A handful of upstart DSL providers fueled by solid initial public offerings have unveiled their own services in many major U.S. cities.

This year as well, the local phone giants finally got wise to the Internet. Many of the Baby Bells began offering DSL access as part of their push to garner more revenue from the increased demand for data services. A $6 billion deal by SBC Communications called "Project Pronto" also helped get DSL on the map.

Yet some analysts think that despite a number of co-branded DSL deals, the leading ISP, America Online, may have missed the broadband boat.

"I think the big non-event story of 1999 was AOL failing to offer DSL services," Wigder said. For its part, however, AOL did sign a deal with Hughes to explore options for high-speed Net service via satellite.

ISPs like AOL have had to explore alternative broadband strategies as they continue their fight for access to high-speed cable networks. This year saw serious lobbying campaigns and mudslinging surrounding the issue of so-called cable open access, a controversial issue that may not see resolution soon.

At issue is access to cable networks like those owned and operated by AT&T, so ISPs can offer their own cable-based high-speed services. To this end, several cities and local governments voted to require AT&T, Excite@Home's largest partner, to open its networks. A court case in Portland, Ore., may decide the future of cable access--but a ruling isn't expected until next year.

Still, AT&T extended an olive branch to open access supporters by announcing its intention to work with MindSpring after its exclusive deals with Excite@Home expire in 2002.

Despite such progress, a litany of problems continues to plague broadband companies. Users have dealt with poor customer service, prohibitive costs, occasional outages and limited availability in all but the nation's largest cities.

"There's about 100 million households just salivating and waiting for service," said Robert Rosenberg, president of Insight Research, a communications industry market research firm. "In the next year I think that the picture, while it's not pretty, will remain unchanged. There will continue to be tremendous pent-up demand."

Analysts say there are a number of challenges ahead for broadband providers. Many are still in the middle of costly network upgrades, required for some cable networks to handle high-speed Net data. Others are still struggling with pricing as they look to gear their services for mass-market consumers. Analysts agree that firms need to offer more services before the average Net user will be willing to pay the premium for high-speed Net access.

"The mass market is not going to be willing to pay twice what they are today [for dial-up] simply to get the Internet faster," Jupiter's Wigder said.

Meanwhile, analysts expect to see more examples of new broadband-specific services offered next year.

"If 1999 was about infrastructure, 2000 will be about applications," Wigder said. "These players are finally realizing that high-speed and 'always on' doesn't necessarily sell themselves, but you need to convey a compelling broadband experience."

Broadband service providers are expected to offer new services such as games, CD-ROM content, streaming audio and video, and video-on-demand services.

DSL companies already are testing voice-over-DSL offerings and are planning to be a part of the growing market for business software services. Excite@Home continues to push its plans for new services, and is planning an interactive television service.

News.com's Aimee Male contributed to this report.