Speed Is the Force Behind Cable Deal
The subtitle of the Comcast-MediaOne mega-merger announced Monday might well be “Waiting for Broadband.”
The opportunity to equip millions of American homes with the high-speed Internet access that could finally fulfill the personal computer’s destiny as a household information appliance is a major factor driving the deal. Both parties in Monday’s proposed merger are important players in the emerging broadband world--Comcast through its 12% ownership of the cable modem company @Home, and MediaOne through its 50-50 partnership with Time Warner in a similar service known as Road Runner.
“The core of this [new] company is broadband communications,” Comcast President Brian Roberts said at a news conference Monday. “The vision both companies have shared is about what broadband can deliver.”
Broadband offers two technological advantages over today’s conventional telephone modems. The most obvious is its speed. Downloading a 10-megabyte file--the size of a modest software program or a video clip lasting several minutes--to a home computer from a Web site takes about 45 minutes over today’s standard 28.8-kilobits-per-second phone modem, but as little as eight seconds over a cable modem.
Perhaps more important is a quality known as “persistence”: A broadband service, like the cable television feed into one’s home, is always on, and thus instantly available once the computer is booted up.
Internet professionals say users’ behavior changes radically when they gain access to broadband service. They tend to use the PC more as an information appliance, gaining effortless access to online telephone directories, movie timetables and television schedules, and often favor data-intense Web sites featuring news and entertainment video clips.
“The important idea to take away about high bandwidth is that more people should be compelled to come online as the Internet becomes a lot more useful and, in many cases, a necessity,” wrote PaineWebber Internet analyst James R. Preissler in a recent study.
Cable and media companies have come to see such usage as a potential cash cow, reasoning that the more elaborate the content they can provide to customers, the better the opportunity to charge premium prices for it. The combination of more capacious data pipelines and digital compression technology may also allow these providers to deliver such lucrative products as movies on demand and new, as-yet unimagined forms of interactive entertainment.
Not only cable companies but the local telephone industry is entranced by this potential. In many areas, the local phone companies are experimenting with “digital subscriber lines,” or DSL, a service that delivers the broadband experience over phone lines and may eventually compete against the cable modem companies.
Still, the vast potential of broadband remains speculative today and will for the near future. At the end of 1998, @Home and Road Runner, the country’s two cable-modem services, boasted 330,000 and 160,000 subscribers respectively. That’s a minuscule audience compared with the leading dial-up Internet service, America Online, which claims 17 million users. (America Online, worried that cable companies may create a broadband monopoly, has begun to strike cooperative deals with local phone companies to bring DSL service to more users.)
One reason for the services’ lag is the costliness of their infrastructure. Before offering either @Home or Road Runner to customers, the sponsoring cable providers must upgrade their transmission lines for two-way communications (conventional cable services deliver programming in one direction). Cable companies have consistently overestimated how quickly they can perform these upgrades.
By contrast, conventional dial-up Internet service is available to almost anyone with a computer, modem, and a household telephone line.
Also impeding broadband’s spread is its relatively high price. The cable modem companies charge roughly $40 per month for service, about double that charged by ordinary Internet service providers. Cable marketers say attracting masses of dial-up users to the marvels of broadband is anything but a slam-dunk, given that most users today access the Web mostly for e-mail and Web site surfing for which they feel that ordinary dial-in service is adequate.
That imbalance is expected to continue into the new millennium. By the year 2002, cable modem services will have about 14 million subscribers, according to consulting firm Forrester Research. Slower dial-up services will have about 45.4 million users at that time, according to industry projections.
“Ten years down the road, broadband will be dominant,” observed Abhi Chaki, Internet analyst for consulting firm Jupiter Communications; but in the meantime, its unavailability and cost will limit its spread.
* CABLE CONNECTION: Comcast agrees to buy MediaOne for $47 billion. A1
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High-Speed Surfing
Cable companies are rushing to combine their resources, in part to offer high-speed Internet access to subscribers. Few residents use high-speed Internet access services today, but subscriptions are expected to jump sharply. Two methods of high-speed access:
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Cable
Cable modems offer unlimited Internet access at higher speeds than conventional telephone access, but at higher prices. These modems require users to share bandwidth, however, and cable systems that can send data back and forth over cable lines are currently available to a limited number of homes.
Projected cable modem subscriptions, in millions:
2002: 13.6 million
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ADSL
Asynchronous digital subscriber line modems use digital coding to squeeze as much as 99% more capacity out of a phone line without interfering with regular phone service. This means users can be on the phone at the same time they are surfing the Web. ADSL services can transmit data as much as 50 times faster than standard dial-up modems.
Projected ADSL modem subscriptions, in millions:
2002: 2.2 million
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Sources: Forrester Research, Times reports
