Broadband Internet growing at snail's pace

By Kevin Maney
USA Today

The technology industry's potential savior could turn into something of an anchor around its neck. The industry has been counting on the fast spread of speedy, broadband Internet access into homes to ignite the next stage of the tech rocket.

Gannett News Service

At a recent Washington, D.C., conference on stimulating the economy, Intel CEO Craig Barrett said that building broadband was so important "the government should proclaim that the broadband infrastructure should be a national priority."

But instead of spreading quickly, broadband is creeping along — in part because of the uncertainty created by the Sept. 11 attacks.

That could mean trouble in tech land. If broadband sputters, the dominoes will fall in all directions, hurting telecommunications companies, cable operators, PC makers, chip makers, big entities like AOL Time Warner and little ones like broadband software tools maker Equator Technologies of Campbell, Calif.

Such companies need a big broadband audience to help them grow and keep customers happy.

In anticipation of a broadband boom, many companies built products and services that work well only over broadband connections. But what if most consumers still connect over dial-up phone lines? Only about 9.5 million U.S. households have broadband service.

"We're getting bandwidth creep that is going to frustrate people who are on dial-up," said Danny Briere, chairman of analyst firm TeleChoice. When that happens, fed-up consumers might turn away.

	Broadband options
	CABLE
•	Subscribers: 5.5 million
•	Pro: Fastest, cheapest, most reliable
•	Con: Connection speeds can slow when you and neighbors share bandwidth.
•	Sample plans:
•	Cablevision Optimum Online (Connecticut, New York, New Jersey) $39.95 a month plus $129.95 ($99 during holiday promotion) for modem, with one-year contract
•	EarthLink (through Time Warner Cable in 10 markets, 20 more by year's end) $41.95 a month, no setup or equipment fees (ongoing promotion)
	DSL (digital subscriber line)
•	Subscribers: 3 million
•	Pro: No need to share bandwidth with neighbors; More options for businesses
•	Con: Users must live near a phone company central switching center. Stories of installation headaches abound. Some customers must deal with at least three companies to complete installation.
•	Sample plans:
	EarthLink (90-plus markets nationwide) $49.95 a month, no setup or equipment fees (ongoing promotion)
	MSN Broadband (through Qwest in several western states) $39.95 a month, $99 activation fee for up to 256 kbps download and upload speeds, and use of DSL modem
	SATELLITE as a broadband option
•	Subscribers: 109,000
•	Pro: Available everywhere in continental states, even in areas not served by DSL or cable. Can offer special webcasts to subscribers. You may get a break if you already have satellite TV.
•	Con: Most expensive by far. Professional installation required for "two-way" systems. Cheaper "one-way" system requires uploading through dial-up modem. Service can be affected by weather or thick foliage.
•	Sample plans:
	EarthLink (through Hughes DirecWay) With two-way system, $69.95 a month; hardware costs $399, professional installation $199. With one-way system, $99 to $149 at retailers such as Best Buy or Circuit City; monthly fees start at $20. You must provide your own telephone modem for the upload portion of the service.

Since Sept. 11, consumers have pulled back on spending, and many will be reluctant to add a $40 monthly bill to the household budget. Some broadband customers are dropping the service as money gets tight.

"No surprise that with feeble offerings that stress consumer budgets, carriers are finding fewer takers for broadband," said Francis McInerney of analyst group North River Ventures.

In a 'no-thrill' phase

Why is broadband key to a tech turnaround?

For two decades, the technology industry has been driven by a combination of developments.

One was the arrival and improvement of the personal computer. As they got faster, cheaper and easier to use, more people bought PCs, boosting sales in software, games, peripherals and chips. Another was the extraordinary improvement in storage and compression, with leaps from floppy disks to CD-ROMs to hard drives that can hold thousands of songs, several full-length movies and everything you've ever written. Storage and compression made way for richer games and software and was necessary for phenomena such as MP3 digital music files.

The early stages of the Internet launched another tech wave: e-commerce, Internet service providers, search engines, streaming media and more.

As generators of excitement and new businesses, those three developments are petering out. PCs have gotten way more powerful than most people need, so consumers have been increasingly content with older models. Microsoft in October predicted that PC sales will be flat or down for the next 9 months. Similarly, storage has exceeded most needs. And the Internet bubble burst as its newness wore off and realistic expectations for growth and Internet use settled in.

"We're in a 'no thrill, now chill' period," Briere said. "People look to the Internet to be more utilitarian."

Widespread broadband could bring back the thrill.

By being "always on" (you don't have to dial in; you're always connected to the Net) and transmitting information at high speeds (from 20 to 1,000 times faster than a dial-up connection), broadband could hook consumers in many new ways.

"Broadband changes your assumptions about how you get information," said Chris Meyer of Cap Gemini Ernst & Young. "Households that have it come to depend on it."

Frustrating setbacks

The slow rollout of broadband has frustrated much of the tech industry for at least a year. It has also aggravated consumers because many want broadband Net connections and can't get them. Broadband could have or should have been much more prevalent by now. But a few factors have gotten in the way.

Phone companies offer digital subscriber lines, or DSL, as a broadband service. But it's difficult to upgrade networks to handle DSL, costly to maintain and time-consuming to install at customers' homes. Cable modems don't work well unless the cable TV network into a neighborhood is rebuilt.

Alternatives are promised, including high-speed, third-generation wireless systems that can handle 10 megabits per second and all-fiber networks that would offer the fastest broadband yet. But those are shuffling forward slowly.

The wait for phone and cable companies is so frustrating that towns such as Kutztown, Pa., are building their own broadband networks.

Meanwhile, competition is ebbing. Nothing spurs companies to disseminate a technology more quickly than healthy competitors. Yet despite pent-up demand for broadband, would-be competitors keep collapsing.

In the DSL arena, many competitors to the incumbent phone companies have found their costs were too high. In the past year, Covad Communications, Rhythms NetConnections, NorthPoint Communications and other DSL firms have filed for Chapter 11 bankruptcy protection.

On the cable side, no viable competitors to cable companies have popped up. One of the biggest broadband cable companies — Excite@Home — filed for bankruptcy protection in September.

A result of the dismal competition has been price increases of $5 to $10 a month for both DSL and cable modems.

Essential vs. luxury

The economy and the terrorists add one last kick. The big question is whether broadband has become essential, like cell phones, which most users wouldn't give up no matter what. Or is broadband more like HBO — a nice luxury, but something that can go if money becomes an issue?

Jupiter analysts are confident broadband growth will continue. The firm's study finds that once a consumer sees and understands broadband, he or she is hooked. "As increasing numbers of consumers know someone with broadband at home, they will be more inclined to make the broadband transition themselves," Jupiter reported.

That will especially be true if consumers find programming on broadband that they can't find elsewhere.

In that way, Sept. 11 might help broadband. The events made viewers hungry for news and video. Six million people looked at video on ABC News' Web site on that day, said Bernie Gershon, head of ABCNews.com — many times more than normal.

"It definitely showed people that there was a video experience online that could be pretty compelling," he said.

USA Today's Edward Iwata contributed to this report.