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Will DSL benefit from Excite@Home fiasco?

As thousands of cable users are stranded without a high-speed Net connection in the wake of Excite@Home's service shutdown, rival DSL providers rush in with special offers.

A major cable provider is dead. Long live DSL.

That's the message from some leading digital subscriber line (DSL) companies, which are offering free installation and other perks to customers without high-speed Internet access because of Excite@Home's bankruptcy proceedings.

Since Saturday, when Excite@Home terminated service to AT&T customers, Email us about the
collapse of Excite@Home cable companies have migrated more than half of Excite@Home's 4.1 million customers to their independent networks. In the migration process, many customers have been temporarily stranded without a high-speed Internet connection, and many have had to change e-mail addresses and endure dial-up access--a fate they complain is downright primitive after using high-speed cable modems.

Rival high-speed access providers peddling DSL technology rushed to answer the complaints of embittered cable users.

Only hours after customers began reporting outages early Saturday morning, Santa Clara, Calif.-based DSL provider Covad Communications announced a special promotion for Excite@Home customers whose homes can be wired for DSL. Covad will give customers a rebate of $225, which essentially erases the cost of installation. Covad is also promising that the new service will be up and running in less than two weeks, and it's offering a free dial-up service in the interim.

The promotion resulted in more than 1,000 new customers on Saturday and Sunday--about double the normal rate of new registrations over a typical weekend, said Covad spokeswoman Martha Sessums. Covad, which expects to emerge from bankruptcy reorganization this month and is eager to build its 350,000-subscriber base, charges $49.95 to $59.95 per month depending on access speeds.

San Antonio, Texas-based SBC Communications, which has 1.2 million DSL subscribers, also announced a promotion Saturday for Excite@Home users--as well as people who have never experienced high-speed access. SBC is giving away a $99 modem for anyone who signs a one-year contract for the $49.95 per month service. SBC spokesman Fletcher Cook said the number of daily orders for DSL since Saturday has been triple that of a normal day last month.

"It's unfortunate that it's come to this point for Excite@Home customers," Cook said. "But we see it as an opportunity."

New York-based Verizon Communications also saw a "good sales spike" over the weekend, said spokeswoman Bobbi Hennessey. Verizon introduced a $29.99 rate for three months with no activation fee and a free PC camera.

Denver-based Qwest Communications is offering a special deal on DSL to customers "stranded" by the breakdown of negotiations between AT&T and Excite@Home. On Sunday, Qwest public relations representatives called and e-mailed journalists throughout Colorado, where AT&T has about 71,000 broadband subscribers.

see FAQ: Answers for Excite@Home customers Thousands of Colorado cable subscribers are in remote places such as Aspen, where AT&T is sending CD-ROMs for dial-up access until it builds its own network to serve those customers. Aspen residents will be among the last to be switched to AT&T Broadband Internet. Qwest representatives estimate that 200,000 Excite@Home customers who live in areas where Qwest DSL service is available are potential conquest customers.

The Qwest marketing campaign aimed at those consumers includes a free DSL modem (normally $200), free activation (normally $99), and up to two months of free service (normally between $39.95 and $49.95 per month). Qwest is also promising installation within 15 days. The company temporarily transferred non-sales staffers to answer calls on a toll-free hotline.

Qwest spokeswoman Catherine Murphy said the company conceived the public relations blitz on Friday, when a San Francisco bankruptcy court judge allowed Excite@Home to negotiate new contracts with its cable partners. That opened the door for the cable companies to end their partnerships and terminate service to as many as 4.1 million Excite@Home customers, who represent 45 percent of broadband users in the United States.

"Because of the court announcement on Friday, basically we made an additional push that if they need to start shopping around, we have an offering that's pretty attractive," Murphy said. "Qwest is a Fortune 100 company. It would be pretty hard for it to go belly up. Most consumers know that it's more solid than a new Internet company."

DSL vs. cable
The Excite@Home morass, which began when the Redwood City, Calif.-based company declared bankruptcy on Oct. 1, has become the latest backdrop in the war between DSL and cable--the two dominant forms of high-speed Internet access for home computer users and small businesses.

The battle for customers has heated up in recent months, as the stagnant economy has fewer people willing to part with up to $60 per month for high-speed connections. Although broadband was once perceived as the driver of future growth in the technology sector, a small but growing number of consumers have canceled service altogether, turning up the heat for the shrinking pool of high-speed access providers.

A survey released Sunday by La Jolla, Calif.-based market intelligence firm ARS determined that the number of total broadband subscribers in the United States increased 14.2 percent in the third quarter of 2001 from the second quarter of 2001.

Although that's a respectable jump, it's the smallest quarterly increase since ARS began tracking such data. In addition, ARS found that broadband subscriber growth rates have decreased in every quarter over the past two years. In 2000, growth rates were at least 30 percent per quarter--more than double the 2001 quarterly growth rates.

The slowdown has caused many providers to stumble. ISPs such as Flashcom, PSINet, Covad Communications, NorthPoint Communications and Rhythms Links filed for bankruptcy protection earlier this year.

"First you saw a lot of competitive companies going out of business," said ARS broadband analyst Mark Kersey. "Now the whole fiasco with Excite@Home--it's a fairly large shakeout in the industry. It comes see special report: Digital Darwinism down to the fact that phone companies dominate DSL and the large cable companies dominate cable, and that's who controls broadband. We've come to the point where a lot of the small players have been weeded out."

Cable companies are worried that negative publicity surrounding the Excite@Home fiasco could further dent growth.

Many AT&T customers have expressed enthusiasm for the company's rapid migration of customers to the AT&T Broadband Internet network. But an AT&T spokeswoman acknowledged that "uncertainty" around the future of the Excite@Home service, coupled with service interruptions necessitating migration of customers to the new high-speed network, could stall sales. The situation is expected to negatively affect growth in the company's number of Broadband Internet customers and revenue generating units in the fourth quarter of 2001, according to a statement from AT&T.

Some customers also say the Excite@Home situation could prompt them to shift to DSL. Many DSL providers are phone companies or work through phone companies, and they're perceived as more stable than some of the cable provider start-ups, including Excite@Home.

Matt Michel, an Excite@Home subscriber in Dallas, appreciated how quickly AT&T switched him to its own network, but he's still having trouble configuring his browser and e-mail. The clock is ticking on his AT&T subscription.

"The set-up isn't ready for prime time, and there are still some configuration issues," he said. "If cable will work, we'll stick with that...We're not ready to get DSL just yet, but we just might if this isn't fixed in two weeks."

The pros and cons
DSL access in some cases is faster than cable access, and some DSL customers say the phone companies that provide it are more reliable than the relatively young technology companies at the forefront of cable.

But DSL providers may be simplifying the situation for Excite@Home customers worried about outages. DSL and cable are radically different systems, and customers need to know the technical complexities of each before making a decision--if they have a choice at all.

see Special report: Excite@Home marriage doomed at the altar? Cable modems are more commonly available in suburban and even rural areas, whereas DSL remains more of an option for urbanites. Cable modems essentially offer Internet access over cable TV wires. Almost anywhere that cable TV is offered, customers can also buy cable Internet access.

According to a comprehensive article in HowStuffWorks, cable modems send information from the Internet to a person's home computer (downstream data) via a 6MHz channel. Information sent from the home PC to the Internet (upstream data) requires only 2MHz because most people download more data than they upload. To send data upstream and downstream at different rates, cable providers use a cable modem at the customer's home and a cable modem termination system (CMTS) at a substation.

In general, CMTS allows up to 1,000 consumers to connect to the Internet through a single channel. A 6MHz channel can process 30 to 40 megabits per second of data, so the first people to use their cable connections have most of the bandwidth--and they can therefore surf the Internet faster. As new customers connect, the bandwidth gets spread among more people, so performance slows--until the cable company adds a new channel.

DSL is completely dissimilar, using telephone lines to deliver data to computers.

Most home phones in the United States work through a pair of copper wires installed by the phone company, but the wires can accommodate more data than simply phone calls. DSL uses extra bandwidth to carry information between the computer and the Internet--while still providing enough room for simultaneous phone calls.

see CNET Internet: Find a broadband provider Because it uses copper wires, DSL usually doesn't require new wiring, as cable installation does. However, DSL performance decreases with distance from the phone company's central office. The limit is about 18,000 feet, so it's still largely unavailable outside of big metropolitan regions.

DSL is usually asymmetric, or ADSL. ADSL sends data to the customer at 8mbps (megabits per second) when the customer is about 6,000 feet from the station. It uploads information at 640kbps (kilobits per second) from the same distance. Most DSL services offer speeds of 1.5mbps downstream and 64-640kbps upstream.

DSL is asymmetric because most Internet users download more data than they upload. Most ADSL connections download information three to four times faster than they upload--a potential disadvantage to photographers, musicians, computer systems architects and others who might be sending large amounts of data from their computers.

DSL is generally more expensive than cable modems, although cable prices are beginning to creep up. AT&T and the Ameritech division of SBC raised DSL prices 25 percent to $50 a month earlier this year, compared with an average Excite@Home subscriber fee of $46 per month.

The battle for public perception
The differences between the two services, and the shrinking pool of providers, have pitted cable and DSL companies in a heated battle for both customers and customer perception.

In August, St. Louis-based cable provider Charter Communications sued Southwestern Bell for its "Cable Modem Slowdown" campaign--a series of comical TV and radio ads that began airing in July.

The ads depict a family so desperate for fast modem connections that they schedule computer time after 10 p.m. to avoid the peak hours around dinnertime, when other cable users are online hogging bandwidth. see special coverage: Complete coverage of Excite@Home troubles Some of the ads, which aired in 13 states, feature a bleary-eyed pre-teen girl guzzling coffee to start her 2 a.m. shift.

In October, a federal judge ordered Southwestern Bell to withdraw the advertisements. U.S. District Judge Catherine Perry said the ads falsely portray high-speed cable Internet connections as bogged down at peak usage times. She was swayed by Charter statistics that cable modems are no more subject to peak-hour slowdowns than DSL.

It's unclear who will ultimately win the DSL vs. cable battle, and whether Excite@Home's financial downfall will tip the scales toward DSL.

"The problems with cable access right now may not necessarily help DSL because it's not available everywhere," said The Yankee Group analyst Imran Khan. "Will there be some migration to DSL from cable? Yes. Will it be astronomical? No."

CNET's Larry Dignan contributed to this report.