Race Is On for a Single Connection

In Aaron Frishman’s spare bedroom, setting up a high-speed Internet connection is as simple as plugging the computer into the wall.

Frishman’s retirement community in Manassas, Va., is one of the few spots in the country where electrical power lines carry data just as capably as telephone or cable television wires do.

“This is the future,” the retired sporting goods salesman said. “A 3-year-old could hook it up.”

Across the U.S., there’s a race to replace the tangle of wires flowing into most homes with a single, all-purpose connection that can deliver voice calls, television shows, movies on demand and high-speed Internet access. Cable providers, phone companies, municipal utilities and wireless operators are spending billions to connect residential customers to high-capacity, fiber optic data networks.

The result: a blurring of traditional product lines and services. Phone companies such as SBC Communications Inc. are gearing up to sell television programming, while cable companies such as Cox Communications Inc. are luring local phone customers.

Oddly enough, the competition is heating up even though regulators and the courts have tossed out key elements of the landmark Telecommunications Act of 1996, notably the rules requiring big regional phone firms to share their lines with rivals.

Technology, it seems, is trumping regulation.

Conventional phone and cable providers that are losing customers at a rapid clip, both to each other and to satellite companies, see all-in-one pipes as a way to turn it around.

By bundling everything together, these companies hope to capture a bigger piece of the $240 billion Americans spend every year to talk on the phone, surf the Internet and watch TV.

“It’s all about owning the telecom consumer,” said Forrester Research Inc. analyst Charles Golvin.

Consumers are likely to benefit because they’ll be able to play competitors off one another the way they do now with mobile phone carriers. They’ll just have to be willing to move to different technologies.

Someone who doesn’t like his phone company could turn to his cable provider for local phone service. Or vice versa. Or, as new pipes evolve, to satellite, wireless or power-line networks.

“People really don’t care about the technology,” said David Pugliese, a Cox cable vice president of marketing. “They just want competitive choice, reliability and good value.”

The basic technology has been in place for years, built during the telecom boom of the 1990s. Companies laid thousands of miles of fiber optic lines, tiny strands of glass that carry data on pulses of multicolored light.

Fiber networks transmit massive amounts of information at the speed of light. They can carry voice, music, video -- anything that can be digitized. And when the fiber networks were built, their backers thought customers would rush to buy all the new services.

But the lines generally ended at telephone and cable companies’ central offices, with homes connected by old copper wires. Taking fiber into the neighborhood, the curb or each house is expensive, but it’s finally happening.

Cable and phone companies have an early lead because they own the rights of ways and already serve most homes. Cable companies have spent $85 billion over the last seven years to improve their local networks. Telephone companies are rolling out multibillion-dollar plans to do the same with theirs.

“What we’re going to have, in theory, is at least three big players competing against each other,” Golvin said. But, in the meantime, “what we have today in metropolitan areas are two giant monopolies dueling it out.”

Once operating in separate markets, cable and phone companies are jumping onto each other’s turf so much that they are looking “more like each other,” said Mark Wegleitner, chief technology officer for Verizon Communications Inc.

Indeed, for the last two years, the West Coast’s top-rated telephone service provider in the annual J.D. Power & Associates consumer satisfaction surveys hasn’t been a phone company, but a cable company. Cox has picked up more than 40% of SBC’s customers in the cable company’s south Orange County and San Diego territory.

“For phone companies, cable firms are enemy No. 1,” said analyst Patrick Mahoney of Yankee Group, a Boston research firm. “For cable companies, satellite firms are enemy No. 1.”

In the future, by the time all the technologies arrive and the major upgrades are done, people probably won’t even bother trying to decipher the various broadband pipes coming into their homes.

Price will become increasingly important.

Purchased separately, local and long-distance calls, high-speed Internet access, mobile phones, live television and movie programming cost an average of $182.43 a month in 2003, according to a Forrester survey.

Customers saved money by bundling some of those services from one company. On average, Americans spent $135.14 a month last year, a 4.7% increase over the previous year and a far cry from simple local and long-distance service that averaged $34.58 a month in 1983, the year before the AT&T; Corp. monopoly was broken up.

“What is clear today is that consumers have shown a willingness to increase their total communications spending over the past several years based on the added value that mobility -- wireless -- and broadband offer,” Golvin said.

On the other hand, as Yankee Group analyst Kate Griffin said, “Each household only has a limited amount to spend on telecom.”

Retired and living on a fixed income, Frishman, 63, certainly was looking for a good deal.

Every morning, Frishman turns on the computer in his apartment and starts reading the online newspaper editions of the Los Angeles Times and the New York Times. Then he checks the local weather and the high school and college sports news from Mississippi. He spends several hours a day in front of the screen, more if he finds a television program he wants to watch.

“I just bought a monitor with one of those picture-in-picture features,” he said. “Now I can do computer work and watch the ballgame at the same time.”

When he lived in Meridian, Miss., he had DSL, or digital subscriber line, service from BellSouth Corp., which meant he had to buy local phone service from BellSouth as well. In Manassas, he was able to save money by ditching the phone company. He uses his broadband connection, delivered for $27 a month by the city-owned electric utility, for phone service.

Although it works well for Frishman, broadband over electrical lines can be a difficult technology to deploy. Power companies generally are still experimenting and trying to develop good business reasons to install broadband.

The next new pipe most likely to reach households is wireless.

In Reno, Tom Smith is a self-described “huge proponent” of wireless broadband. He and his family buy theirs from a local Internet service provider, Hot Spot Broadband.

“My son does quite a bit of online gaming and commented recently that everything is faster in multi-player games and that his ping rates [lag times] have dropped,” he said, noting satirically, “I guess that’s the true test of any connection.”

Wide-area networks -- either Wi-Fi (for wireless fidelity) or WiMax (for worldwide interoperability for microwave access) -- are cropping up in small towns and metropolitan areas nationwide.

A host of Internet and other companies are using Wi-Fi and WiMax, separately or in combination, to provide broadband pipes, primarily for businesses. The more powerful and less costly technologies soon will take over most cellphone networks as well, industry experts said.

Both independent and large long-distance carriers, all but shut out of competition for local service on conventional wired networks, could be back in the game using WiMax within 18 months, said analyst David Willis at the Meta Group research firm in Stamford, Conn.

Meanwhile, the entrenched cable and DSL providers control the game. Larry Hettick, for one, is “quite content” with his high-speed cable modem service.

Before moving recently from Visalia, Calif., the telecom analyst for Current Analysis Inc. in Sterling, Va., lined up Cox cable in Virginia to serve all his telecom needs: video, voice and data. He figures that this phone bill alone will be cut in half.

Irvine resident Mark Neckameyer, 61, also switched all his telecom services to Cox, saying the top-rated customer service is just icing on the cake. The cable connection is not only fast, but it’s also reliable.

“Anytime I have questions, it’s usually something that I screwed up myself,” the retired accountant said, adding that Cox’s phone service “is a lot less expensive” than SBC’s and the quality is “every bit as good.”

It isn’t easy for some phone companies to compete. DSL speed fades over distance, and some houses are thousands of feet from the nearest central telephone office -- making for Internet connections that seem barely faster than dialing up.

Verizon is installing fiber optic lines all the way to Huntington Beach homes as part of its initial effort to replace its copper network with super-fast connections impervious to climate and distance. The fiber connection that Radford Robinson got recently at his Huntington Beach home was amazing -- “definitely the future,” he said.

It took a Verizon crew 12 hours to bring the fiber line 250 feet from a backyard telephone pole to his house and connect both his computer and his phone system.

“DSL was good, but nothing compared to this,” the 69-year-old former owner of an import-export company said. “It’s like comparing a Model T to a new Jaguar.” Even voices on the phone sound clearer, he added. “There’s no static or fading out.”

Fiber is expensive to take deep enough into neighborhoods to provide nearly unlimited bandwidth, and phone companies are taking that risk with the hope that they’ll win enough customers to make the new networks profitable.

Satellite, in the meantime, is still winning customers.

Francine Wheat of Brea isn’t sure she’ll ever go back to a wired connection for her television and movie programs. After 10 years on cable, she signed up in 2000 with EchoStar Communications Corp.’s Dish Network.

“We had cable that started out at $29 a month, and the price kept going up,” the law firm office manager said. “By the time we switched, it was more than $50 a month and we hadn’t changed any service.”

Poor customer service was the final straw, she said. “The cable went out throughout the neighborhood on a Friday, and the cable company said they would be out on Monday to fix it. All the neighbors were in an uproar.”

She now receives high-quality video with no major problems. “I plan on staying with it,” she said.

Until the local utility starts sending movies through the power lines, perhaps.