Cable, DSL or satellite? high-speed internet connections can download information 50 times faster than a standard 56-kilobyte modem. But technology hasn't caught up with demand

Insight on the News, Dec 17, 2001 by Tim Lemke

Call it impatience; call it reliability; call it convenience. All of these and more are driving Internet users to demand high-speed connections. Even in a slow economy, millions of cybernauts are shelling out $40 per month or more to get the quick download speeds and always-on connections provided by broadband access. But its deployment has come at a slow pace in many areas.

Broadband comes in several forms, the most common of which are cable and digital subscriber line (DSL), which uses standard phone lines to transmit data. Only 4.5 million, or fewer than 10 percent of all U.S. Internet users, use DSL. More than twice as many use cable, but they still represent a minority.

"The availability of service has been spotty," says Adam Guglielmo, a DSL analyst with the technology consultancy TeleChoice. "That goes pretty equally for cable and DSL."

But there are signs that availability has improved. TeleChoice reports that DSL subscriptions increased by 20 percent in the first quarter of 2001 and 14 percent in the second quarter. This increase may seem significant, but when compared with an annual growth rate of 388 percent in 2000, analysts see a drastic slowing of demand. Cahner's In-Stat Group, an analyst firm in Scottsdale, Ariz., reported earlier this year that demand for broadband far outweighed supply, but the company recently found deployment was matching demand, particularly with respect to DSL.

"Even though the residential DSL market slowed significantly after the first quarter of 2000, residential DSL broadband-access services are becoming increasingly available in the home as providers are able to extend their services to the edge of the network," writes Cahner's analyst Ernie Bergstrom.

Some experts ascribe the recent decrease in DSL subscriptions to marketing efforts of satellite Internet providers such as DirecTV and the Dish Network. Despite universal availability, satellite initially attracted consumers in rural areas where DSL and cable services are unavailable. Satellite service, while reliable, is not as quick and costs more.

Recently, Hughes Electronics, which owns DirecTV, and EchoStar Communications, which owns Dish Network, announced plans to merge, a move expected to attract close scrutiny from the Federal Communications Commission and the ire of consumer advocates. EchoStar's Dish Network claims about 6.9 million subscribers, while Hughes' DirecTV service reaches more than 10 million customers. AT&T Broadband, the largest traditional cable operator, serves about 16 million households.

Fiber-optic line, which provides service much faster than cable, DSL or satellite, is another option. But it will be 15 years before this technology will make a significant impact.

DSL has faced one hurdle in attracting new business: Subscriber lines often are incompatible with older copper phone lines, making proper conversion costly and time-consuming. Consumers have complained loudly. Websites bashing DSL providers abound on the Internet, often targeting large companies such as SBC (formerly Southwestern Bell Communications) and Verizon:

* From a Website called Verizon pathetic.com: "After four months of waiting and three different `service-ready dates' for DSL, Verizon called me today and said everything was set and I was up and running. Turned on the modem and, um, nope."

* From an online message board regarding Sprint DSL service: "If anyone thinks about getting DSL, I would advise against it completely. I have not been able to access my e-mail for three months."

* From a Website called WeHate PacificBell.com: "DSL installation takes forever and is a nightmare."

Analysts admit there still are some hiccups in service -- DSL providers can take weeks to deploy, while cable broadband can be hooked up within a day -- but point to noticeable improvements. SBC reports that the average customer waits 10 days for DSL hookup and that 90 percent of orders are completed on or before their original due dates. Verizon touts similar figures and says the waiting list for service has shrunk to fewer than 800 customers nationwide. Meanwhile, the company claims that 90 percent of its customers use self-installation kits, which can save time.

Nevertheless, only Verizon has reported a big increase in sales this year, boasting 120,000 to 130,000 new subscribers in the third quarter, although analysts say the recession might cause the company to fall short of its goal of 1.2 million to 1.3 million by year's end. SBC, once the leader in the DSL market, fell behind during the first quarter after reporting a 25 percent decline in subscribers.

The problem is that many Baby Bells, such as SBC and Verizon, are able to offer DSL to only one-half of their customers since service requires subscribers to be within a certain distance to central offices. Increases, therefore, must come from populated areas, not from geographic expansion.

Baby Bells, which provide more than 80 percent of DSL service, often face off against smaller local service providers known as competitive local exchange carriers (CLECs). The relationship between the Bells and the CLECs is odd because they are both competitors and business partners: CLECs, which compete against the Bells for local phone and Internet service, must rely on the Bells' network for service.