Broadsided

Broadband has its own version of Black Thursday: Call it Blank Saturday. That would be December 1, 2001, when Excite@Home, then the nation's largest broadband provider, switched off its high-speed network in the early-morning hours, nixing Internet connections for 850,000 customers who signed up for the service through AT&T. AT&T's subsequent buyout bid fell apart, and soon after, Excite@Home—one of the supernovas of the late 1990s Internet stock explosion—announced it would cease to exist on February 28.

It was that kind of year for broadband. By the end of 2001, analysts were also administering last rites to erstwhile broadband stars like NorthPoint and Rhythms NetConnections. Fixed-wireless hopefuls like Teligent, Winstar, and Advanced Radio Telecom also toppled. Failing companies stranded customers who were already frustrated with connection speeds that fluctuated wildly and customer service that was baffling—if it even existed.

And throughout it all, demand for speedy connections has steadily increased. What's going on?

55 Saves Lives

Speed, it turns out, really does kill. Companies tried to do too much too soon. Broadband's growing following notwithstanding, high-speed access hasn't caught on with the fervor—or profitability—that many observers had anticipated. "I think we all assumed a Field of Dreams mentality—build it and they will come," says Harris Miller, president of the Information Technology Association of America. "That's probably been one of the major misjudgments—along with overcapacity, and some of the obstacles that monopolistic local telephone companies threw up."

In numerous ways, early broadband companies such as NorthPoint and Rhythms were mere victims of the overheated 1990s. The Telecommunications Act of 1996, which ostensibly opened telephone lines to all comers, created a sense in the nascent broadband community that the field was wide open. DSL providers built national networks using existing copper phone lines from local owners—known as "incumbents"—like Verizon and the Baby Bells. Then they sold the services to ISPs, which in turn sold them to their customers.

Despite the megahype, broadband turned out to be wildly expensive—typically costing as much as $2,000 to install, with residential customers paying as little as $45 per month in return. "If you're going to do that on a national level, you'd better have really, really deep pockets," says Kathie Hackler, chief analyst at Gartner Dataquest. "They didn't, and they jumped into the market without a support system."

Complicating matters was the companies' reliance on the incumbents' infrastructure. Incumbents often proved indifferent to solving DSL route problems, leaving customers with nowhere to turn. "To really have robust competition, you need to have new kinds of technology introduced," Hackler says. "They were relying on technology provided by the incumbents. So in effect, they weren't the real wholesalers, the incumbents were."

Among the survivors, Covad Communications has retooled in bankruptcy court, shifting its focus away from the consumer market. But both AT&T and Sprint Broadband—which aggressively marketed its fixed wireless service early last year—recently suspended efforts to take on new customers.

Yet broadband clearly isn't going away. Surveys reflect a healthy demand for fast Internet connections. A recent study by Gartner Dataquest found that "broadband access is continuing at a phenomenal rate despite dire predictions by industry pundits," with almost 20 percent of dial-up households expecting broadband speeds by the middle of this year. "The indications are there are lots of people still very interested in broadband," Hackler says. "It's the faulty execution of the companies putting the service in that created the gap that has to be closed."

'Round the Bend

So what happens next? For now, broadband providers are waiting for new rounds of technology to make the service more viable. "A lot of the economic problems with profitability are getting worked out," says Charles Golvin, senior analyst at Forrester Research. "The newcomers didn't have the deep pockets or the resources to weather those challenges."

Companies with newer, leaner technology are popping up to fill the abyss. Typical of the new set is CoWave Networks, which provides a fixed wireless service called MeshCast. CoWave plans to dramatically cut infrastructure costs by having customers double as service providers using repeater-based technology. The more customers in a given area, the cheaper the service—and customers can install it themselves.

Chau Jasty, CoWave's founder and director of product marketing, says the market shakedown should help the industry in the long run.

"The playing field is more level now," Jasty says. "And if we have the right solution, we'll pick up market share." CoWave will test the service this year before unleashing MeshCast in the fourth quarter.

Ultimately, it will probably boil down to a few providers with a lot of customers instead of the other way around. But broadband providers need attractive pricing and distinct content to truly become profitable.

"Faster e-mail and Web surfing clearly isn't convincing people," says Miller, who says he believes the industry should promote broadband use for teleworking and e-learning and try to create buying co-ops for small businesses and government agencies. And instead of bickering over provincial issues like copper lines, the industry has to work together. "Everyone has been focusing on how wide the lanes are going to be, and how much concrete to use, and where the off-ramps are going to be," Miller says. "Meanwhile, people haven't been driving on the highway. We should all agree that we want more people on the highway."

 

Your Broadband Options Customers looking to try broadband can choose their connection from a growing list of access platforms. Here's a look at the contenders. Technology Pros Cons Cable/DSL Next wave of technology for these old standbys will allow providers to offer tiers of prices and speeds. Reliability and customer service have to become more uniform. Fixed Wireless Self-installed plug-and-play technology eliminates line-of-sight issues and reaches beyond major cities. After trial runs and tweaks of second-generation technology, it'll be 2004 before widespread availability. Satellite Available virtually everywhere in the country with a view to the southern sky. Most services limited, with upstream via phone line; problems with buildings and trees. Unlicensed Band A potential bargain: No license fees are required for telecom regulators, and inexpensive equipment is available. ISPs are uncomfortable not knowing whether they can ensure quality of service.

Copyright © 2002 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Ziff Davis Smart Business.