Cable industry slices into broadband market

From...

by Jennifer Jones

(IDG) -- Despite a DSL surge last year, high-speed cable has managed to hold on to an early lead over its broadband rival. Now many cable vendors are basking in that front-runner position -- and banking on the promise of recent blockbuster industry mergers.

Cable's formidable reach as an up-and-coming broadband technology is now undeniable. In January, America Online locked up its merger with entertainment giant Time Warner; AT&T has also become a big cable player and is now tying up loose ends with government regulators in its merger with Media One. AOL Time Warner is the parent company of CNN.com.

Although these mergers are mostly about bringing high-speed access to home users, cable is expected to play heavily in enterprise efforts to outfit growing numbers of teleworkers. As of late 2000, cable boasted about 6.2 million subscribers worldwide versus DSL's 4.6 million, according to Scottsdale, Ariz.-based market research firm Cahners In-Stat Group.

"The fact that we are three years into the broadband revolution and cable still has a substantial lead says something," notes Mike Paxton, senior analyst at Cahners.

Spreading its wings

The story of cable's staying power starts with the nation's massive cable buildout -- an effort to transform a one-way television medium into a two-way Internet medium.

That effort was in the works long before DSL took off at a dizzying speed. But DSL has lately hit rocky financial times, mostly due to up-front infrastructure costs and disorganization among a cast of players.

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"The massacre in the DSL market has only been good news for the cable market," says Tim Spencer, CTO of Sigma Systems, a Toronto-based maker of OSSes (operations support systems), which cable operators use to deploy cable service, manage customers, and troubleshoot service problems.

But priming users for high-speed cable access is also an expensive proposition, and the cable operator industry is also taking its share of knocks on Wall Street.

"They are taking a hit and are now heavily in debt. But cable providers have got to position themselves this way for the future, in terms of providing broadband services for the payback several years down the road," Cahners' Paxton says. "If they don't, they will be run over by the satellite vendors, video over DSL vendors, and fixed wireless."

Cable's saga also involves some short-term blows. For instance, AT&T Broadband in early January announced a 6 percent rate hike for cable services, due in part to efforts to upgrade services, as well as an order stoppage.

Moves such as that have a direct impact on the industry growing up around broadband cable's evolution. AT&T's end-of-year budget balancing act had Antec, a cable network hardware provider in Duluth, Ga., scrambling to warn its investors that AT&T's order stoppage would take a toll on Antec's own financials.

"We were founded in 1993 on the notion that HFC [hybrid fiber coaxial] cable would be the broadband transmission of choice," says Jim Bauer, of Antec's investor relations department. "Some bet their companies on DSL, ISDN, or satellite. But HFC has proved to be right."

Making the right choice

Even without stellar stock figures, other vendors fueling the transition to high-speed cable are also feeling pretty pleased with their choice.

"As I went from engineer to entrepreneur, one area I had to focus on was the question of where the industry would be four to five years down the road. An industry has to be highly successful on the financial as well as technical side," explains Venkata Majeti, CEO of Cadant, a Lisle, Ill.-based manufacturer of CMTSes (cable modem termination systems).

A former AT&T executive, Majeti worked on a cable modem project in the early 1990s and turned to DSL-related efforts before choosing cable for his startup.

"When the company was being formed, I looked at different broadband technologies that would bring services to the mass market. We chose to go back to cable," Majeti says, noting that when taking into account all of the up-front costs of DSL, he perceived cable as being further along.

Merger decisions

Now that the industry has consolidated, mammoth companies such as AOL-Time Warner and AT&T must weave together disparate systems.

"For cable operators, the challenge will be a classic systems integration problem," notes Mark Anglin, Sigma Systems' director of sales and marketing.

But the mergers have had little tangible impact on the vendors cranking out solutions for cable operators.

For instance, questions about when and how competing ISPs will be given access to AOL-Time Warner's cable infrastructure -- a major issue in the government's review of the merger -- will likely have little effect on the industry, says Rich Phillips, director of marketing at Simplified, a cable telephony software provider in Austin, Texas.

"We don't believe the government needs to regulate open access because there will be an explosion of applications," Phillips says.

But Sigma's Spencer says new cable combinations may spur innovation in the field, adding, "If you look at some of the back-office savings, there may be some value in the mergers. They may also save time in terms of the development of new products, since the companies have a larger footprint."

The mere presence of those big names has also buoyed the entire industry, because "AT&T's entry in the market validated some of our choices and brought cash into the market," Cadant's Majeti says.

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PCWorld's complete guide to broadband
(PCWorld.com)
High court to review high-speed Net rules
(The Industry Standard)
U.K. telecom says DSL makes no economic sense
(IDG.net)
Segaâs broadband adapter for Dreamcast
(GamePro.com)
Will DSL mergers mean better service?
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Four reasons to be optimistic about DSL
(Network World Fusion)
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(The Industry Standard)

Cahners In-Stat Group

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