The homes are using an advanced high-speed technology that phone company US West is hoping will put it on an even footing with telecommunications giant AT&T. The Baby Bell aims to offer telephone services and a high-speed Internet connection--as well as 125 channels of television--over a single high-speed pipe.
It's a risky bet, and no other phone firm has yet followed in US West's footsteps. The company has had to put its project temporarily on hold while its merger with Qwest Communications International is completed, though US West is still considering expanding the service to new cities next year.
Nevertheless, the apparent success of the technology's early introduction in Phoenix could provide a glimpse into a future when the local phone company and the local cable company will offer the same services--simply over different wires.
"Based on the Phoenix results, it's reasonable to assume we will see this become a large part of our strategy in the coming years," US West's high-speed data division president Joe Zell said. "We hope to be in the position early next year where we'll start seeing some expansion of our footprint."
Dubbed VDSL, or very high data rate digital subscriber line, US West's technology is a variant of the same kind of high-speed Internet service used by all the big local phone companies. Most consumer-focused DSL allows telephone and high-speed Net traffic to travel over traditional phone lines, but isn't powerful enough to carry television-quality video signals.
VDSL uses a combination of the high-speed fiber-optic lines of larger networks and traditional phone lines to transmit data. The difference is with VDSL, those fiber-optic lines are strung physically closer to a home, allowing more data to travel over phone lines that connect the home to the fiber-optic network at large.
Although the performance potential is greater, there are more limitations to the technology. To effectively use traditional DSL, a user's home must not be more than three miles from the phone company's central switching office. VDSL signals are limited to about a mile or less, depending on how much information is involved. To accommodate this, phone companies would have to spend billions of dollars to put enough fiber-optic cables in the ground to support consumer demand.
The costs involved as well as the technology's relative novelty has kept the other big local phone companies from offering VDSL, and kept analysts skeptical about its ultimate viability.
"There's a lot of difficulty in rolling out fiber to some remote terminals in the networks," said Joe Laszlo, an industry analyst with Jupiter Communications. "That becomes very pricey."
But US West says the costs aren't overwhelming--in fact, it's about the same price AT&T faces to transform its new cable TV networks to support digital cable and high-speed cable Net services.
"The cost per home is roughly equivalent to the full digital upgrade of the cable platform," Zell said. In US West's case, that figure is about $1,500 per household, he added. That's compared to an average $700 to $1,000 per home to upgrade to ordinary telephone-based high-speed Internet service.
The VDSL service has one other advantage to other phone-line technologies, Zell noted. Because it mirrors cable TV in many ways, US West must get licenses to operate from local authorities, as cable companies do. But this means that the telephone company doesn't have to sell access to the lines to competitors like Covad Communications, Rhythms NetConnections or other telephone companies, as it does with all of its other telephone services.
"That's a very positive thing," Zell said.
But if all of these advantages are real, why haven't the other big local phone companies introduced their own plans for VDSL? The answer lies in each company's individual strategy, analysts say.
"Every Bell company has its own thinking about video and how to get there," said Jeannette Noyes, an industry analyst with the International Data Corporation.
SBC Communications, with its recent decision to invest $6 billion in its high-speed Net services, has its own strategy. Much of that money will go to drawing fiber-optic lines closer to homes to introduce high-speed Net applications like video on-demand. But while the company is testing VDSL, it says it's not yet convinced that the technology is ready for the prime time.
BellSouth is taking the idea even further, placing its long-term bets on bringing fiber-optic lines right into consumers' homes.
US West is currently charging about $32 for a full package of digital cable services, and another $35 for the high-speed Net connection--making it comparable or even less expensive than similar services offered by AT&T.