Bandwidth battle

Computer Industry Report, June 30, 1999

Until the next generation of the Internet arrives, there is an increasing recognition by content providers as well as delivery mechanisms such as ISPs that since bandwidth is very desirable, it is worth fighting for.

The U.S. District Court in Oregon ruled that Portland could require AT&T to open its cable lines to rivals, and that case is being appealed.

The FCC Chairman William Kennard indicated that a national policy is needed to govern access to the Internet via cable, but the FCC favors a nonregulatory approach and urged the cable industry to act "responsibly" in opening access to its lines.

But the issue isn't likely to disappear soon from the agendas of municipalities. Both San Francisco and Los Angeles are currently studying the issue.

The faster bandwidth offered by cable wasn't such a big issue a year ago when the landscape was littered with many small players possessing small geographic fragments and streaming audio and video had not reached the mainstream population.

Now, after a frenetic six months with cable companies acquiring and selling each other several times over, the remaining few cable enterprises command sizable geographic presence. In addition, streaming audio and video are de rigeur for today's teenagers.

Hence the demand for more bandwidth. AOL with its dual presence as a content provider as well as deliverer of service is feeling the pressure to provide more bandwidth. After being rebuffed by several cable companies, AOL took to the air and via a $1.5 billion investment in Hughes Electronics Corp. will gain access to its satellite channels. But don't expect this satellite deal to quell AOL's quest for cable delivery.

Currently, the Hughes DirectTV service provides satellite downloads, but consumer input has to travel by phone. The firm is developing a two-way satellite communications system. The added advantage of satellite is that it stretches to areas not served by cable. The move complements AOL's previous agreement with Hughes Network Systems (HNS) and its AOL TV initiative.

As part of AOL's movement toward TV, HNS will collaborate on development of a service that combines satellite TV programming with interactive content. Hughes will build satellite set-top boxes that handle both the DirectTV feeds and the AOL service. Going beyond the DirectTV audience, Philips will build a terrestrial set-top that enables non-DirectTV subscribers to access the service. Network Computer Inc., of which AOL is a partial owner, will provide the software for the set-tops and server management software (see AOL Confirms AOL TV, Partners Announced, IDC #19240, May 1999).

IDC estimates the Direct Broadcast Satellite (DBS) service is gaining nearly 200,000 new subscribers each month and that about 8% of home Internet users already have DBS service.

AOL isn't the only content provider buying bandwidth. Microsoft is throwing $5 billion at AT&T for a 3% stake in the telco giant and the ability to use AT&T's newly acquired cable network for Internet and possibly other content formats as well. This deal occurred shortly after AT&T agreed to buy MediaOne, a large cable network. Microsoft also acquired a stake in a U.K. cable/telco company, Telewest Communications.