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Consumers face narrow broadband market

A curious paradox is at work in the high-speed Internet world: High-flying companies such as Excite@Home are collapsing in droves, but demand remains for their services.


Consumers face narrow broadband market

By John Borland and Ben Heskett
Staff Writers, CNET
December 26, 2001, 8:00 a.m. PT

A curious paradox is at work in the high-speed Internet world: High-flying companies such as Excite@Home are collapsing in droves, but demand remains for their services.

The result is awkward for the still-growing number of consumers seeking alternatives to the speedy connections they've grown used to, or those who are finally ready to give broadband a try.

What they're finding is a world radically transformed from even a year ago, with the marketplace now dominated by the giant telephone and cable companies. That's an almost complete reversal from the way Internet access developed in the dial-up world, where independent Internet service providers seized the market initiative early on and have been in the driver's seat since.

The network giants--ranging from AT&T Broadband to Verizon Communications--can give gun-shy customers confidence that their service will still be around a year from now. But the new lack of competition also could stall the spread of cable and DSL (digital subscriber line) availability and features, and prices could remain elevated, analysts say. Other alternatives are moving slowly to market, but they are unlikely to have a significant effect for some time.

"The kind of innovation (we've seen in the past) is going to be slower to develop than if we had vibrant competition," said Jupiter Research analyst Joe Laszlo. "If there are just two or three providers that consumers will talk to, it's likely to be a slower evolution."

The collapse of the first generation of broadband providers reached its peak with the flameout last month of Excite@Home, the largest high-speed Internet provider in the world with 4.1 million customers. But the slide in the sector has been occurring for months, as other Internet service providers and DSL network providers have slipped into insolvency, leaving their customers groping for alternative connections.

The beneficiaries of this reversal of fortune have been the "Baby Bell" telephone companies. Once viewed as dinosaurs with little grasp of the Internet, they have kept a close grasp on the DSL business that relies on their telephone lines. Other companies still offer the service, but many consumers wary of seeing another ISP collapse have simply decided to go with the most stable option.

In the early days of the DSL and ISP collapses, cable services--particularly Excite@Home--appeared to be a good alternative. That company's subscriber list has swelled substantially in the last months. But as it disappears, those consumers are winding up with Comcast, AT&T Broadband and Cox Communications.

But Bell and cable companies don't historically have the best reputation among consumers, particularly the tech-savvy demographic that still predominates among broadband. That's sentiment has proved beneficial for ISPs that still offer broadband services, such as EarthLink, America Online and DirecTV DSL.

DirecTV, which bought struggling DSL provider Telocity earlier this year, offered a sign-up special for Excite@Home customers leery of staying with their bankrupt company beginning last month. The week afterward, in which they offered two free months to refugees, was "one of the largest weeks in its history," the company said in a statement.

Although current options are somewhat limited, new technologies are on the horizon, including "fixed wireless," satellite transmissions and fast direct fiber-optic connections.

Of those three, fixed wireless, originally offered most prominently by Sprint, AT&T and Metricom, is the most widely available option. The technology is similar to mobile phones, but it uses a different slice of the airwaves to beam data back and forth.

The companies offering it have had their own financial troubles, however. Metricom went out of business before being bought by wireless rival Aerie Networks. AT&T cut its own "Project Angel" offering, which had few customers. Sprint is maintaining its service but has stopped adding new customers, saying that limitations in current technology "do not allow for an optimum cost structure."

However, the fact that cable companies and big telephone companies have said they are loathe to expand their broadband services to rural areas or even some suburbs could open the door to smaller wireless competitors. The technology might even be better deployed by small businesses that serve a single town where cable and DSL is unavailable, for example.

"There is a very genuine need for connections," said Imran Khan, an analyst with The Yankee Group. "Cable companies are not interested in expanding, and (telephone companies) are going back on their plans. It's a good opportunity for fixed wireless."

Moreover, a new generation of wireless broadband technology will eliminate many of the technical issues that held the services back, such as interference from trees and buildings. Sprint says on its Web site that it "remains hopeful" that the new technology will allow it to start adding customers again, but the company has made no promises.

Satellite services that offer a fast two-way connection, as opposed to the one-way connection most typical allow now, will likely take longer to move into the market. However, the planned merger between EchoStar Communications and Hughes Electronics, the two largest satellite TV companies, could help push the business forward.

Hughes' satellite service, one of the most popular to date, is sold through ISPs including EarthLink and AOL and is available nationwide; but it costs about $70 a month.

Each of these two main alternatives is expected to grow slowly, however. Jupiter Media Metrix recently predicted that the United States market would have about 14.8 million cable modem subscribers by 2004, about 9.3 million DSL subscribers, and less than a million each of fixed wireless or satellite subscribers.

Farther off, but already reaching a few lucky households, are direct "fiber to the home" connections, in which super-high-speed fiber-optic cables connect a home directly to the telephone network.

BellSouth and SBC Communications are already experimenting with this in new neighborhoods. But the cost of equipment still makes it difficult to justify for consumers. 

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Slim pickings
There are few alternatives for broadband refugees.

Cable (Dominant companies)
Price: $40 per month
Availability: Most major cities, suburbs, but still spotty.
Speed: Varies. 200kbps to 10mbps

Cable (Alternative carriers)
Price: $29.95 to $49.95 per month
Availability: Limited. RCN, biggest alternative, is in six metro markets.
Speed: Varies. 200kbps to 10mbps

DSL (Phone companies)
Price: $40 to $50 per month
Availability: Most major cities, spotty in suburbs and rural areas.
Speed: Varies by company. Starts at about 384kbps

DSL (Alternatives)
Price: Typically $49.95 per month
Availability: Most major cities and suburbs through ISPs EarthLink, DirecTV DSL, others.
Speed: Typically 300kbps to 1.5mbps

Fixed Wireless
Price: Typically $49.95 per month
Availability: Very spotty. Most big providers no longer signing up customers. Some small ISPs still offer.
Speed: Varies. Averages 200kbps to 1mbps

Price: averages $70 per month
Availability: Almost anywhere in U.S. with unobstructed view of sky, through EarthLink, AOL, others.
Speed: Up to 400kbps, slower uploads