THE CABLE INDUSTRY'S BIG DREAM
(FORTUNE Magazine) – Cable modems are a fantasy. Unfortunately, an entire industry is enjoying the fantasy.
You've probably heard recently about how the cable TV industry is having a tough time. In fact, in this very issue you can read about the problems confronting the biggest player--Tele-Communications Inc., John Malone's Englewood, Colorado, company. Dumping on cable seems almost fashionable now, perhaps because journalists want to pay back the industry for making so many unfulfilled promises--500 channels of television; interactive TV; new, low-priced telephone service; and really fast access to the Internet via cable modems, the current unfulfilled promise.
In truth, the industry is in a bind. Over the past 18 months, direct satellite vendors have become real competition. Right about the time you read this, I'll be getting my satellite dish installed. Once it's in, I'll call my local cable provider, TCI, and tell them to turn off all but the most basic service. TCI will get $42 less from me each month, while the satellite guys will get $65 a month. (I keep basic cable for local broadcast stations--in the near future I should be able to receive those too via satellite.)
Meanwhile, the cable industry, humbled by the failure of its grandiose interactive-TV plans, now admits that improving its infrastructure, even a little bit, is really expensive. What's more, the industry has discovered that providing good customer service can also be really expensive, which is unfortunate because cable operators have a reputation for really bad customer service. In other words, cable operators have to spend a lot of money to stave off competition and improve the quality of their service--but they don't have any new money to spend.
Personally, I'm happy I'm not in the cable television business right now.
But just when all seems hopeless for the cable industry, up pops a silver bullet: cable modems. Cable modems are devices that let personal-computer users plug the TV cable into the backs of their computers and get access to the Internet at speeds at least ten times faster than that of the most common telephone modem. There are about 36 million U.S. homes with PCs, and a large percentage of those homes have cable. Since so many people use their home PCs to do serious work, and since a high-speed Internet hookup can be a great productivity booster, selling cable modems would seem a compelling opportunity.
PC users have already demonstrated that they will spend serious money--on hardware, software, and online services. They spend lots and lots of money. So what if--here's where the fantasy begins to take hold--some measurable percentage of PC users would use cable modems to get access to the Internet? They'd pay, say, $35 a month on top of their current cable bill to rent the modem and get the service. Millions of people have already demonstrated that they will pay $20 a month for unlimited access to America Online or the Internet itself. Surely they'd pay $15 more to get there "at the speed of life," as they say at @Home Network, a prominent Internet service designed for cable modems. An extra $35 a month from subscribers? That's real money for the cable vendors, perhaps enough to pay for those expensive upgrades, perhaps even enough to ensure profits.
This whole fantasy of getting paid to link homeowners' PCs to the Net depends, of course, on the cable modem itself--how easy it is to install and how well it works. I recently spent a day at the Western Cable show in Anaheim, California, where I reviewed at least a dozen different models of cable modems from Scientific-Atlanta and General Instrument, the leading vendors of set-top boxes for cable TV, as well as from Sony, 3Com, Intel, Motorola, Bay Networks, Ericsson, Hewlett-Packard, Com21, and others. (By the way, my partnership has investments in Com21 and 3Com. But I have the feeling I won't be welcome at either company after they read this column; you can judge for yourself whether I'm misleading you on the state of cable modems.)
At each booth, I asked the same question: What would I have to do, as a customer, to get a cable modem? Here's what I learned:
--You have to find out if your cable company knows what a cable modem is and has made its equipment good enough to use one. High-speed two-way data transmission is no simple task. I have an ISDN line at home, which was installed two years ago by Pacific Bell, probably the most aggressive phone company when it comes to high-speed digital service. To make the thing work, my employer's network manager had to spend about six hours in my kitchen with a Pacific Bell installer. Have you ever tried to get even basic customer service from your cable company? I can't imagine the people I've dealt with at TCI being better at technical diagnostics than the Pacific Bell installer.
Cable modems present bigger technical challenges to the cable companies than any they've faced. Sending computer data back and forth over a cable is more difficult than pumping a movie in one direction. To make its pipes carry two-way transmissions without introducing bad data, a cable operator has to go back and futz around with every connector, every wire, and every transmitter. But let's give the operators the benefit of the doubt and assume that someone like @Home Network, essentially a team of computer networking nerds upgrading networks for cable operators, will solve this problem.
--To get your cable modem service up and running, your cable company must send two installers to your house, one to adapt the cable and the other to fiddle with your PC. So find time in your schedule to be home from eight to 12 in the morning or from one to five in the afternoon--twice. The cable companies say they try to send the two guys out at the same time. But come on, how likely do you think it is that two installers, one from the cable company and one from a computer-service subcontractor, would show up together?
--The cable guy will add a new branch to your TV hookup, with a wire long enough to reach your computer. (Presumably, you don't want your TV and your PC right next to each other.) Then he will plug the cable into the cable modem. This brings us to the first gotcha. Unless your cable operator has fully upgraded your neighborhood system, you will also need a phone line to send data back through the Internet. The big cable operators say that a considerable portion of their systems has been upgraded--but most of us aren't yet in that happy state.
So chances are good that you will need to plug a phone line into your cable modem. But since we're being nice here, let's assume you're one of the minority of home PC users who already have telephone lines dedicated to their computer modems. That way we can continue our little story without worrying that maybe you'll have to go to the trouble of securing a second (or third or, in my case, fourth) phone line so getting on the Internet doesn't keep your mother from calling you or interrupt your teenage daughters' telephone rap sessions.
--After the cable guy is finished, in comes the computer installer to network your cable modem to your computer. That's right, network. The cable modem has to talk to your computer through an Ethernet network, because the standard ports on the back of the computer can't deliver data as fast as the cable modem can. To make your little network work, you'll need an Ethernet card inside your PC. (This is why network vendors like 3Com and Bay Networks are interested in the cable TV business.) Of course, which kind of Ethernet card you need depends on which kind of computer you have. Putting one in could be easy, or it could be hard. Not only must your installer make sure the link between your PC and cable modem works, but he may also need to configure your computer's operating system to use the Ethernet card correctly.
There are other issues we wouldn't want to raise, like trying to share the cable modem with other computers in the house, since that would require networking the whole house and would raise all sorts of issues about network partitioning and protocol management. Suffice it to say that some of my best friends are very well paid MIS managers for large corporations, and they are challenged by installing and configuring local area networks. How do you think the computer guy hired by your cable company is going to do?
So let's just say that you go with the cable modem, that the installation gets done--so now you have Internet access at the speed of life. Provided you can avoid other bottlenecks on the Internet (see following story), you'll be able to whiz over to www.playboy.com and download those photos in seconds instead of minutes. You'll be able to browse the sites of Universal Pictures or Warner Bros. and watch the trailers for movies. If your mother is also using a cable modem, you'll finally be able to have a video conversation with her without the jitters and other problems associated with previous videoconferencing technologies--oops, sorry. If you're using a phone line to send stuff to the Internet, you still won't have a big enough wire to do videoconferencing. You'll have to wait for your cable operator to upgrade its system to accommodate the next generation of cable modems. That should all be finished by, say, 2001 or so.
While wandering around the Western Cable show, I kept noticing that demo stations for cable modems were either turned off or showing their stuff very slowly for such fast and whizzy devices. Don't blame the cable modems, I was told. The show operators said that the local phone companies could not provide enough bandwidth for all the cable-modem demos. Uh-huh. Right.
Cable modems are a fantasy.
REPORTER ASSOCIATE Sheree R. Curry
STEWART ALSOP is a partner with New Enterprise Associates, a venture capital firm. Unless otherwise noted, neither he nor his partnership has financial interests in the companies mentioned. Alsop can be reached at email@example.com