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Cable access future clouded by DSL

Internet access via cable faces stiff competition from digital subscriber line modems and Internet service.

Although it is faster and currently available, cable modem Internet access faces stiff competition from DSL (digital subscriber line) modems and Internet service.

A heated effort from four of five Bell telephone companies and a panoply of How real is DSL?technology giants working to promote high-speed access through DSL is creating a formidable competitor to cable services when perennially cash-strapped cable players need to upgrade their systems.

Cable's biggest problem, observers say, is cash flow. Cable operators are going to have to invest millions over the next few years to upgrade their systems to carry two-way Internet traffic. Although the telephone giants face their own investment requirements, cable companies may have to invest more and may not have the same access to capital.

"The technological issues [for cable] are trivial. The problems are social and economic," said Radu Andrei, director of engineering at Semico Research. "Their problem is their conflict of economic interest with the telcos...There are not too many users so far, much less than expected."

Cable defenders, on the other hand, point out that inexpensive DSL at this point remains a pipe dream. The technology isn't currently on the market and the main proponents have yet to agree on technical standards. Cable vendors, by contrast, have settled their standards issues and currently provide service, pointed out Lisa Pelgrim, senior analyst at Dataquest. Modems based on the Multimedia Cable Network Systems (MCNS) standard will start to come out this summer, which should boost popularity and ease in implementing cable access.

Cable will also provide faster service, providing a maximum of 30 mbps. Although the speed will slow with the addition of subscribers, it will remain faster than the 1.5-mbps pace promised by DSL.

But while the technological issues facing cable Internet access may not be difficult, they likely will be expensive, according to Will Strauss, president of Forward Concepts. Currently, only five percent of cable subscribers live in zones where two-way cable connectivity exists, he said. An @Home spokesman said that two-way coverage reaches 10 million homes.

Thirty percent of subscribers will live in two-way areas by 2000, but increasing that number will take significant investment, said Strauss. At the same time, the increase of two-way signals will require cable owners to work the means for reducing the noise and interference that will come with increased traffic.

By contrast, DSL will be cheap, said Semico's Andrei. It will cost operators probably only $100 per customer to perform the upgrade as outlined by the phone companies.

As a result, DSL service could be slightly cheaper, said Strauss. Monthly cable Internet access will run around $30 to $40 while DSL should cost $30 to $35. Modems for either will run in the $200-plus range.

Current DSL service is far more expensive. Special Report: Cable modems fight for lead Some of the telcos charge close to $150 per month for 384-kbps service, sources say, while the charge for 1.5-mbps/384-kbps receive/send capability is around $250 a month.

Investment is not being denied to the larger cable operators. These companies are obtaining funds from some of the same firms funding DSL. Microsoft has invested approximately $1 billion in Comcast, while Microsoft, Sun, Intel, and others jockeyed over themselves to work with Tele-Communications Incorporated to develop set-top box technology that will allow viewers to more easily obtain Internet access via their TVs.

Beyond the investment issue, the speed of cable holds a significant attraction for consumers, said Pelgrim. In addition, the cable/DSL debate is something like the fight between the elephant and the whale. That is, these giants will not really compete directly because they will serve different markets. Cable will mostly target homes because that is where the cable infrastructure leads. DSL, meanwhile, will target businesses.

"Very few users are going to have a choice of both for the next few years," added Pelgrim.

Sandra Colony, vice president of public relations for Road Runner, one of only two cable Internet services available today, asserted that her industry understands how DSL can change the landscape, but she remains confident of cable's viability.

"We see the consumer market and the SOHO [small office/home office] market as our targets. We are not after the enterprise business market [at the present time].

"By the time they [DSL] launch, we will have had a two-year lead," she added.

Meanwhile, @Home Network (ATHM) reported a jump in revenues today as the company signed on additional subscribers to its consumer and its business service, which is called @Work. Revenue grew to $3.7 million for the quarter ending December 31, a 95 percent jump over revenues of $1.9 million reported in the September quarter. The company reported revenue of $535,000 in the fourth quarter of 1996.

Net losses for the quarter, before a non-cash charge of $172.6 million related to a Cablevision distribution agreement, were $11.8 million, or 10 cents per share. Including the charge, the net loss for the quarter was $184.4 million or $1.55 per share, compared to a net loss of $11.9 million or 10 cents per share in the previous quarter of 1997. Revenue and net loss for the fourth quarter of 1996 was $500,000 and $9 million, respectively.

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