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Once upon a time — three years ago, actually — local cable companies introduced low-cost, high-speed Internet access in San Diego. Known generically as broadband technology, cable access was an immediate hit. It was particularly popular with business executives who went home at night to enjoy lightning-quick file downloads after poking along in the office using dial-up modems that operated at a comparative snail's pace. Then along came a San Diego venture capitalist who introduced a technology that used the existing copper telephone wires to carry high-bandwidth data transmissions. Enter DSL (digital subscriber line), which provided an affordable alternative to pricey T-1 fiber-optic lines and to cable, which was not readily available to business customers. Subsequently the telephone company, whose primary Internet service was dial-up, was leapfrogged by upstart DSL providers, who delivered broadband connections to office buildings countywide. But Pacific Bell lumbered back into the game, played its DSL card, and trumped the competition this year by lowering the cost of basic DSL service to $39.95 per month for residential and small-business customers. New players entering the arena promise an even lower cost-per-data ratio with the introduction of wireless broadband later this year. Moral of the story: Speed sells. Broadband Revolution We are in the midst of a broadband revolution, broadband referring to any technology that enables high-speed data transmissions. Cable and DSL systems, for example, can move digitized information anywhere from 10 to hundreds of times faster than dial-up modems, which typically operate in the 28.8 to 56 kilobit-per-second (kbps) range. According to the latest "Online Census" report from Telecommunications Reports International, the number of cable modem subscribers grew 44 percent to 2.3 million last year. DSL subscriber numbers rocketed by 183 percent to 189,500. Proponents expect DSL to overtake cable within two to three years. Cable growth is particularly evident in America's Finest City, which boasts the highest per capita Internet usage in the country — 11.16 hours per week, a recent Neilsen survey reveals. Cox Communications, which celebrated the three-year anniversary of its @Home cable Internet service in May, doubled its subscriber base last year to 60,000 households. That number may double again this year, says Art Reynolds, vice president of new product marketing. "The past three months are our biggest months for growth," he says. Time Warner, which has less than half the territory of Cox, is experiencing similar growth, says Stephen McMahon, director of the Time Warner service area in San Diego. The Road Runner cable Internet service was rolled out in February 1997, three months ahead of Cox, and now boasts 33,000 customers, almost double the number of a year ago.
Both executives say the increase in speed allows users to accomplish more while online, as well as to save time and money in other aspects of their personal and business lives. They also concede that DSL is now providing fierce competition. Web Hogs Witness the controversial "Web hog" commercials aired recently by Pacific Bell. The ad depicts once-friendly neighbors bickering among themselves because a few selfish "Web hogs" were spending so much time online they caused intolerable slow-downs of the cable Internet connections. The solution, the commercial declares, is DSL. Excite@Home, an affiliate of Cox, cried foul and rattled its legal swords, claiming false advertising. Pacific Bell quickly added a footnote clarifying the service, but defends the humorous commercial. "The architecture with DSL is that the line between you and the central office belongs to you — you don’t share it," says Pacific Bell spokesman John Britton. "With the cable architecture, you’re sharing it with however many people are on the node. It’s well documented that when too many people get online, it slows down." However, where DSL falls short is that its transmission speed drops proportionately as the distance from the central office increases, with a maximum distance of about three miles over copper lines. DSL is theoretically capable of up to 7 megabits per second (mbps), approaching the range of cable service. (By comparison, a T-1 line is rated at 1.5 mbps.) But DSL carriers typically will only promise 384 kbps (and sometimes less) for basic DSL service. To ensure satisfactory performance, the cable and telephone companies are extending their fiber networks deeper into the neighborhoods. Pacific Bell's goal is to have fiber within 1,200 feet of all residences. "We will guarantee 1.5 mbps between the user and the central office at the same price (as 384 kbps)," Britton says. Pacific Bell's biggest headache has not been competitors' complaints about its advertising, however. It has been customer complaints over waits of as much as six to eight weeks to get DSL service installed. Cox counterattacked by offering free installation if it did not get new subscribers online within four days. In addition, Cox is introducing self-installation kits for new customers, eliminating most of the installation costs. Time Warner is expected to introduce a similar program. Costs Dropping Predictably, as the competition heats up, the costs of DSL services are dropping faster than the price of Microsoft stock. Pacific Bell entered the market in September 1998 at $89 a month, plus upwards of $200 installation costs, for residential and home-office users. It’s now less than half that, making it competitive with cable, which has not had rate decreases. New kid on the block Telocity Inc. announced in early April it was entering the San Diego market at $49.95 a month, then two weeks later matched Pacific Bell's $39.95 rate when the actual roll-out began. "We knew it was a very competitive market and customers demanded a more aggressive price point," says Joe Harris, senior director of market development of the Cupertino-based company. Regional DSL providers — CTSnet, Phoenix Networks and others — have lowered their entry-level prices to below the $50-a-month threshold as well. Price isn’t the only battlefield, however. Added value is an important piece of the puzzle. Special promotions, reduced or waived installation fees, enhanced service and tailored content are being thrown into the bargain. The message: Comparison shop. Business Community DSL is making its greatest strides in the business community, where the residential-oriented cable providers are playing catch-up. With businesses already wired with copper telephone lines, DSL — which can combine data, voice and fax — almost becomes a no-brainer for small- to medium-size businesses seeking broadband service. The advantages of broadband are several, not the least of which is greater productivity while online, enhancing e-commerce and business-to-business (B2B) enterprise. It also opens the door to new business opportunities, not only in terms of providing services, but the distribution of audio and video products, telecommuting, and operating remote offices, as well as developing new applications aimed specifically at broadband users.
Stensrud, who has been in the telecommunications industry almost 30 years, has broadband in his blood. He was the founder and first president of Rhythms NetConnections, which began offering DSL service in San Diego two years ago in partnership with several local Internet service providers. "The real opportunities lie in providing telecommunications equipment, communications services and content, including applications that can fully utilize the high bandwidth that reaches the end user," he says. Nonetheless, a cautionary note was tossed into the ring by Mark Burgess, president of sandiego.com, a corporate Web site developer and ISP operating since late 1993. Known for debunking high-tech hype, Burgess says drum-beating broadband marketers are as much as two years ahead of reality in terms of what services are actually possible to deliver over the current Internet infrastructure. "Broadband's time is coming, and DSL is the better way to grow it because of the scalability, security and the fact that it doesn’t have the network choke that cable creates," says Burgess, whose company also offers DSL service. "But the bottom line is, it’s a good thing DSL doesn’t work for everybody, because if it did, the Internet would come to a crashing halt. While on aggregate Internet capacity is increasing, huge bottlenecks still exist." He is supported by studies cited recently in Interactive Week magazine. DSL deployment alone could increase bandwidth demand on the network by as much as 10 times, according to the February article, "Deflating the Bandwidth Glut Predictions." Further demands will be placed on the network by video programming and collaborative work sessions, wrote author Joe McGarvy. "The glut vs. scarcity pendulum … appears to be moving back toward the scarcity side," he wrote. Stensrud and others downplay these concerns, arguing that it’s the slow connections of the so-called "last mile" to the end user that creates the bottleneck, not the backbone. DSL is only a small step toward eliminating that bottleneck, he says, noting that the broadband bar will be raised another notch with the introduction of wireless services later this year. He's put his money where his mouth is. Enterprise Partners has invested in two San Diego-based broadband wireless equipment manufacturers, Air Fiber Inc. in Rancho Bernardo and Ensemble Communications Inc., which has offices in University City and Tel Aviv, Israel. Air Fiber uses an eye-safe laser beam to transmit digitized information between transceivers mounted on buildings, eliminating the need for installing fiber-optic cable. This can reduce the broadband deployment cost by a factor of 10, says company spokesman Geoff Mordock. "To connect a building using fiber costs about $300,000 and can take six months to a year, but our system can be installed by a service provider for $20,000 in a matter of hours." In addition, the optical system, which can be shared by all of a building's tenants, will support data speeds up to 622 mbps, 400 times the speed of a T-1 line. "This system will provide true full-motion, wide-screen video conferencing," Mordock says. It will be commercially available in some markets by late summer. Ensemble Communications uses high-band radio frequencies for data transmissions via what’s known as a point-to-multipoint system. Ensemble's Fiberless system, designed to support data rates of 40 mpbs and burst rates of up to 120 mbps, is undergoing trials in San Diego, Pennsylvania and New York. It’s expected to be commercially available later this year in some markets and in San Diego next year. "Wireless broadband will play an important role in delivering broadband to the business market," says Rami Hader, Ensemble's executive vice president and founder. "I’m not saying DSL will not be successful — it’s an important tool — but I do see the business market being covered by wireless as well." Moreover, he foresees these next-generation broadband systems opening the door to new applications, creating more business opportunities. "I cannot even predict what kind of opportunities will evolve five years from now," he says. "But this will create a new realm of possibilities and that’s what our system will enable." Bottom Line Broadband means business. Broadband services have become a commodity and are no longer the sole domain of the high-end corporate user. The increased data transmission rates offer increased productivity and create new business opportunities. Larry M. Edwards is a new-media consultant and the author of the Official Netscape Internet Business Starter Kit. He may be reached online at: larry@larryedwards.com and www.larryedwards.com. |
"We are in the middle of a business commerce chain management revolution," says Bill Stensrud, a general partner of the La Jolla-based Enterprise Partners Venture Capital.
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