Small Company Challenges the Giants With High-Speed Digital Subscriber Line
In a small town 50 miles east of Reno, a battle is brewing that soon could be played out across the country. On one side is Churchill County Telephone, the local phone company with 14,000 customers. On the other is AT&T; Corp.’s cable division, with 25 million customers and a plan to offer phone service in the area by year’s end.
It hardly seems a fair fight.
“How do you combat AT&T;?” asks Don Mello, general manager of Churchill County Telephone in Fallon, Nev.
Mello hopes the television set-top box in his office will be the answer. For the last year, his company has been quietly testing the technology known as asynchronous digital subscriber line (ADSL) to offer a package of services that will include regular phone service, an Internet connection at 50 times the speed of a normal dial-up connection and movies on demand.
ADSL services, which transmit video over conventional phone lines by sending the video signals at higher frequencies than voice signals, are just beginning to be deployed across the country. The local phone company, US West, for instance, is hoping to serve 100,000 ADSL customers by the end of the year, up from 20,000 last year. Sprint promises to offer ADSL to millions of customers in 35 cities by the end of this year.
Churchill’s service, put together by SourceNet, a small Reno-based Internet service provider, uses a set-top box from Redmond, Wash.-based Stellar One along with digital telephone and data switches and video servers to allow customers to use their television sets to surf the Web, watch high-quality local TV broadcasts and view movies for $3.99 each.
DSL? Movies on demand? Stellar One? Didn’t similar efforts flop in market trials five years ago?
They did. Stellar One’s set-top box even made it into the Smithsonian Institution a few years ago as the first such device as interactive TV was quickly supplanted by the World Wide Web as the buzzword of the day.
But DSL advocates say things are different today. In the first place, costs are way down. During market tests in the mid-1990s, it cost more than $10,000 to set up a single home for movies on demand.
Now, SourceNet Chief Executive Tony Atwater figures it costs just $2,500 per household to offer the services.
Five years ago, there weren’t enough services to justify the cost. Today, in addition to movies on demand, there is growing demand for high-speed Internet to Web surf and watch online videos. And improved technology for compressing video enables Stellar One to offer movies and television at a quality close to satellite television.
US West is even testing a service that will allow DSL customers to use their computers for CD games and educational titles offered by the phone company, as if the CD were sitting in their own computer.
“I buy a CD and in a week my 2-year-old has trashed it,” said Audrey Thompson, director of new-product development at US West. “This way, they get to play lots of different things.”
Phone companies also have far greater incentive today to invest in ADSL, as cable companies threaten to move in and steal their customers with local phone service.
“We want to be able to talk to customers every month and offer new products and services when we send the bill,” said Mello, who already offers his customers long-distance telephone, cellular, Internet and paging services. “If you aren’t sending a bill, it’s just junk mail and nobody is going to read it.”
ADSL advocates think they have a great thing going considering that AT&T; is buying cable companies at rates approaching $4,000 per household--and then committing vast sums more to upgrade their systems to handle interactive television and regular telephone service.
There are still plenty of questions. Mello admits there are glitches in his system that will probably prevent him from rolling out services until early next year. Analysts are skeptical about whether ADSL-based services will effectively compete with cable across the country.
“The cable companies already have HBO and Turner cable signed up,” said Gerry Kaufhold, an analyst with Newton, Mass.-based Cahners In-Stat Group. “It’s not an easy process to build up a video service.”
Kaufhold said the biggest market for ADSL will be businesses and home offices that have the strongest need for high-speed Net access and are more likely to use such interactive applications as videoconferencing.
Overseas markets, where cable services are less developed, also have great potential. Stellar One will announce today that it has signed distribution deals for a similar system with Siemens, the high-tech German conglomerate, and New World Infrastructure, which controls China’s largest Internet service provider. The company also is talking to Venezuela about using its system to offer a national interactive service for tele-medicine and distance learning.
In this country, Kaufhold believes, ADSL could develop quickest in rural markets where cable service tends to be poorer.
That’s the market that SourceNet is targeting. Atwater said the company has letters of intent from small companies in the West and Midwest representing more than 200,000 phone lines.
US West, which has a broad territory of rural customers, said its interactive service will begin early next year. Intertainer, in which the phone company has made an investment, is making deals in Hollywood to line up content for the service.
Such efforts will only accelerate efforts by cable providers. It’s probably no coincidence that Fallon will be one of the first towns in Nevada where AT&T; plans to offer local telephone, high-speed Internet and other services.
For Churchill’s Mello, that means tough competition. For customers, it might finally mean more choices and better service.
