Cable Modems Promise a Glimpse of the Future
The revolution takes a step forward. Starting this fall and gathering momentum next year, most cable television companies will offer customers modems for their computers--at roughly $20 to $30 a month rental fees--that will greatly expand their ability to access the Internet and receive graphics and video pictures.
Some companies will even allow customers to send material back again--to quickly exchange video e-mail and create motion picture home pages.
The technical breakthrough is in speed, modems working hundreds of times faster than the most advanced equipment currently available. And that could bring breakthroughs in usage and services.
The cable modem is a step, not the journey. There are other hurdles to be overcome before the Internet becomes a mass market. Still, the advent of this new piece of equipment is a significant juncture for the information economy. So as business people, investors and ordinary citizens, we should look at the prospects.
A welcome change with cable modems is that “accessing the Net” will be no more; just turn on the computer and it will be online, just as television is always “on” the cable. That’s an essential feature if the Internet is to become truly a mass market.
Also, thanks to the modems’ ability to deliver motion pictures in a timely fashion, movie previews could displace newspaper advertisements, customers could copy music videos in seconds, and video phone calls could become more feasible.
Such visions already have sparked another wave of enthusiasm on stock markets. U.S. Robotics, the Skokie, Ill.-based maker of modems, has quadrupled in the last year, rising almost $40 a share, or 20%, in the last three weeks alone. Zenith Electronics, with newly appreciated cable modem promise, has tripled in a couple of weeks. Motorola and General Instrument, suppliers of routers, modems and other equipment, have been strong.
Expectations, as usual, are for breakneck expansion. But a close look at the numbers suggests a more deliberate pace will be the rule.
Edward Zylka, marketing director for General Instrument, estimates the initial market at 1.5 million cable modem users.
Analyst Emily Green of Forrester Research, a Cambridge, Mass., high-tech consulting firm, forecasts 7 million cable modems in use by 2,000--roughly 16% of the personal computers in homes today and less than 10% of all PCs in use.
And that level will be achieved only if cable companies make major investments to upgrade their lines. That won’t be cheap.
The investment to make cable suitable for two-way communication could be $250 to $600 per subscriber, says James Phillips, vice president of Motorola and head of its Multimedia division.
That doesn’t mean investments won’t be made. Computer users are demanding wider communications channels--or bandwidth--so that audiovisual information can be instantaneous, as it is with radio and television.
And cable operators are being pushed by competition from direct-broadcast satellite providers and telephone companies.
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So investments in infrastructure will be made. Cable companies are already buying large data servers to store information off the Internet for retransmission to customers. Look for mergers, like US West’s pending $10.8 billion acquisition of Continental Cablevision, to ease financial problems.
Yet to date, neither telephone nor cable companies have been eager to spend on technology for the home-based customer. That’s because they wonder, frankly, if a profitable market is yet available on the Internet. Expert studies that can only estimate the number of online users at 10 million to 25 million are not reassuring.
Yes, it’s certain the business will develop, but many are unclear on precisely when or how.
For understanding, it’s wise to get away from jargon like “bandwidth” and consider what real people and communities are doing.
Thousand Oaks, a city of 112,000, is about to have two directly competing cable companies, one of them the phone company, GTE. Taking advantage of the Telecommunications Reform Act’s encouragement to competition, GTE won the right to provide cable to Thousand Oaks even though Tele-Communications Inc. already provides service.
The city wanted competition to give it advanced communications and videoconferencing capabilities with nearby communities, explains Shirley Cobb, media services manager for Thousand Oaks.
GTE will put in interactive cables, with links to Camarillo, Oxnard, Port Hueneme, Santa Paula and Ventura, says Jonathan Kramer, whose firm, Communications Support Corp., advises communities on cable technology.
Elsewhere, universities are thinking of the competitive implications for their own faculties of long-distance interactive lectures by nationally renowned professors, which will be possible thanks to cable modems.
The potential of Internet broadcasting is that it can combine broad reach with community interest--the athletic event that only alumni wish to see.
The bottom line is that Internet usage is going to grow because people want its advantages and are willing to cope with the disruptions of change.
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For perspective, says analyst James Magid of Needham & Co., investors should recall that the personal computer’s development took more than 15 years to evolve from the student’s Apple Computer in the 1970s to the spread of IBM PCs in business in the 1980s to home computers in the 1990s.
The Internet industry--as reflected in the World Wide Web--is only 6 years old. And it’s far too early to say whether Netscape and Yahoo will be to the Internet’s development what Intel and Microsoft, two companies considered mere suppliers in the early days, have been to the personal computer industry.
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What lies ahead? People want simplicity and ease of use, which argues that a market will emerge soon for the $500 Internet access computers that Oracle and Sun Microsystems are producing.
Meanwhile, the Internet’s appearance has to change, says Andrew Kessler, a partner in Velocity Capital of Palo Alto. The World Wide Web now resembles magazine pages, Kessler says, but the “mass market will insist on TV-quality images” combined with the interactivity of the Internet.
The cable modems you’ll hear about this fall will hasten that mass market’s arrival.
