56-kbps modems struggling

As next month's meeting to set preliminary 56-kbps modem standards draws near, 3Com's U.S. Robotics (COMS) and Hayes Communications expect sales of 56-kbps modems to increase.

Currently, most users employ 28.8-kbps modems. The new 56.6-kbps modems run about twice as fast. But users have been reluctant to buy 56-kbps modems, according to the two modem manufacturers, which represent a large chunk of all modems sold.

The hurdle for makers--and the reason for reluctance on the part of some consumers--is that modems using U.S. Robotics x2 technology don't currently operate with modems based on Rockwell and Lucent K56flex technology, since standards have not yet been set.

The standards question is expected to produce a interim solution when the International Telecommunications Union meets next month to work on 56-kbps modem technology. Observers expect a preliminary standard that will likely include elements of both the x2 and K56flex protocols.

The current lack of a standard has discouraged some consumers from buying modems altogether, or purchasing older 33.6-kbps modems as they wait for a standard to be set.

"We thought that 70 percent of our sales would be 56-kbps modems versus 30 percent for 33.6-kbps modems, but it has been just the opposite. It will probably be the end of the year before that reverses," says Dennis Hayes, chairman of Hayes Communications.

"When the specifications come out in September, we'll really be able to assess whether or not we can do firmware upgrades," says Hayes, noting that customers will have a higher level of confidence that the 33.6- and 56-kbps modems they buy will be upgradable to the final standard, which is expected in early 1998.

By enabling customers to upgrade modems with new software instead of requiring trade-ins, manufacturers can assure consumers they shouldn't worry about waiting until the final standard is set sometime in 1998. That in turn is likely to lead to a jump in 56-kbps modem sales, Hayes says.

USR doesn't expect to see as rapid an increase as Hayes--sales have already been increasing steadily since the product's introduction, says 3Com's Joseph Dunsmore, vice president of new business units. "Sales are about six to eight times the [pace] of 33.6-kbps modems" over the same period, he notes.

"Where a standard will have impact is on IT managers, who are standards-sensitive and tend to be cautious. That's where we see a big market opportunity," says Dunsmore. He sees consumer demand as being spurred more by seasonal forces such as back-to-school demand and Christmas.

International Data Corporation (IDC) analyst Abner Germanow agrees with Dunsmore. He says, "I'd be surprised to see a spike in modem sales," but thinks a preliminary standard, also called a determined standard, should give companies a modest boost.

"Where you see most of the hesitation is more on the ISP (Internet service provider) and corporate side of the equation than on the consumer side," Germanow says. "The biggest inhibitor is if that if an ISP doesn't support a particular 56-kbps technology, then it doesn't do a consumer any good. The question is 'How long before there are enough ports for people to use?'" he asks.

Indeed, online service providers are the key piece to the 56-kbps puzzle, because without them, consumers can't get the faster access speeds. Both x2 and K56flex technology require that the service provider have a high speed digital connection to the Internet in order to send the data faster to a modem at a remote location. Both kinds of modems return the data to the service provider at 33.6 kbps.

While the transition to 56-kbps modems will occur quickly on the store shelves, "Widespread and high availability of 56K remote access server ports will not reach significant availability until the second half of 1998 at the earliest," according to IDC.