The gap in the race to market between cable and ADSL modems standardized for retail distribution has narrowed significantly, but the news might not be as grim for the cable industry as it appears at first glance.
There's no getting around the fact that the cable industry's goal of going into 1999 with a head of steam in deployment of DOCSIS (Data-Over-Cable Service Interface Specification) modems has been thwarted by the delays that have plagued completion of certification of vendor equipment at Cable Television Laboratories Inc. throughout the second half of this year. Meanwhile, the Universal ADSL (asymmetric digital subscriber line) Working Group, launched a year ago at the prompting of Microsoft Corp., Compaq Computer Corp. and Intel Corp., has met its goal of reaching consensus on a set of specifications for ADSL.Lite, which the International Telecommunications Union is expected to adopt as the G.992.2 or "G.Lite" standard by mid '99.
While vendors are already shipping G.Lite chipsets, the good news for cable is that the telcos are in no hurry to shift to G.Lite from the base of proprietary systems they've been using in widescale launches of ADSL services throughout '98. Thus, cable will still have a window through at least the first half of the year to build momentum at the retail level in advance of telcos' G.Lite service launches.
"There's going to be a period of migration (for G.Lite) with a lot of interoperability testing; it's going to take some time," says Bill McDonald, a senior product manager at Fujitsu Network Communications, which is partnered with Orckit Communications as a supplier of ADSL gear to GTE.
G.Lite-compliant systems are meant to overcome several drawbacks to current ADSL systems, starting with the requirement that a second line be installed to carry data to the PC from a premises-mounted splitter that connects with the outside line. Full rate ADSL systems are designed to operate at downstream speeds as high as 8 megabits per second, depending on user distance from the central office switch, whereas the G.Lite system is capped at 1.5 Mbps downstream and 512 kilobits per second upstream for operation at distances up to 15,000 feet from the CO.
Both types of ADSL support simultaneous delivery of voice and data signals, but G.Lite is designed to throttle down to a few hundred kbps when customers are on the phone and on line at the same time,so as to accommodate the use of a single twisted pair for voice and data in the home.
So far, there's no formal means of interoperability certification established for G.Lite as there is for the cable industry's DOCSIS process. Bell Communications Research was set to convene a G.Lite certification process at press time, and it is also likely that the ITU and the U.S.-based ADSL Forum will implement such procedures, McDonald says.
Initial testing of G.Lite is underway in several telco territories, including publicized trials by GTE in Portland, Ore. and by BellSouth at the campuses of the University of Florida in Gainesville and the University of Miami. So far, test participants say vendor systems have demonstrated that the standard works as billed.
"We've been operating the test to a cluster of 20 users representing a wide range of home wiring and outside plant conditions for about 30 days," says Bev White, program manager for new product development at GTE. "We're very pleased by the performance."
The test, involving employees of Intel Corp. who volunteered for the trial, encompasses new and old homes, some with wiring that has been in place for more than 50 years, White says. In nearly all cases, data and voice signals operating simultaneously over single twisted pair wiring in the home have met performance specifications, she notes, adding that, where performance was sub-par as a result of interference between simultaneous uses, an easily installed microfilter on one or more telephones in the home took care of the problem.
"With no phone off the hook, even the users at the outer distances (from the CO) are getting the full rate," White says. "And, when phones are off hook, in many cases we're seeing data rates as high as 480 kbps downstream and 220 kbps upstream."
The next phase of the GTE test, expanding to about 50 users, will seek to demonstrate that G.Lite service can be easily installed by the customer without requiring visits by technicians, which is another key goal of the standard. "We'll be testing user implementation procedures, allowing people to install themselves and then calling them to see how it went," White says.
GTE, with ADSL service available from 215 central offices in 15 states and moving to 300 COs by year's end, will be able to upgrade its DSLAMs (DSL access multiplexers) via software without having to add new hardware, White notes. Likewise, telcos including BellSouth, Ameritech and SBC Communications that are using DSLAMs supplied by Alcatel Telecom, will be able to software upgrade to G.Lite, says Jay Fausch, senior director of marketing and business development at Alcatel.
In fact, Fausch says, Alcatel has already taken steps to achieve interoperability both at the chip level in conjunction with an agreement with Texas Instruments Corp. and at the end-user level in testing with a variety of modem suppliers. "Hundreds of lines are running G.Lite in the University of Florida trial, and it has gone very smoothly," Fausch says.
Even so, Fausch, like other industry players, acknowledges the pace of industry rollout of G.Lite services will be relatively slow, pending wider interoperability testing and broad support at the consumer product end of the market. Pacific Bell, for instance, which is using Alcatel gear in its ADSL deployments throughout California, won't be ready to announce its G.Lite plans until next June, says a spokeswoman for the telco.
At US West, which is participating in the G.Lite standardization process and testing the technology, the main focus going into '99 will remain on expanding its existing platform, which is based on the CAP (carrierless amplitude phase) modulation technique and is incompatible with the DMT (discrete multitone) modulation used in G.Lite. "We're going to wait and see how the industry and the manufacturing community gravitate to G.Lite before we make any decisions," says Matt Rotter, executive director for US West's Megabit service.
The carrier has undertaken a set of initiatives aimed at expanding its market base with the existing platform, which uses gear supplied by Cisco Systems Inc. Along with adding 40 central offices to the 213 currently equipped with DSLAMs by early '99, the company is introducing a self-installation program that allows users to go online to determine whether their lines qualify for service and then order and install the service by following online instructions without waiting for technicians, Rotter says.
In addition, he notes, Cisco and US West are working on means to extend the reach of ADSL another 2,000 feet from the CO to a maximum of 17,000 feet and to begin implementing DSL service over lines served by digital loop carriers in targeted high-demand markets by early next year. The telco has also taken steps with Cisco to expand the capacity of its DSLAMs so that more wires can be provisioned with ADSL in areas where demand has outpaced supply, he says.
But, even with the improvements, only about 50 percent of the users served by DSLAM-equipped central offices will qualify for service, compared to about 30 percent today, Rotter says. This percentage, which is lower than that claimed by most other telcos rolling out ADSL services, will go up as US West continues to upgrade its lines, he adds.
Nothing better illustrates the cautious approach to G.Lite among telcos than Bell Atlantic's strategy, which is pegged to the CAP-based system supplied by Westell Technologies. As the last of the major telcos to launch DSL services and with a heavy emphasis on the consumer market, the carrier might have been expected to exploit the advantages of going with a DMT-based system that would be easily upgradable to G.Lite, or even to hold off a bit so that it could go forward with a pure G.Lite play.
Instead, Bell Atlantic will watch developments on the G.Lite front and, when industry support is broad and deep enough, will jump in, officials say. Meanwhile, the carrier is getting its three-tiered "Infospeed" service underway in Washington, D.C., Pittsburgh, Philadelphia and northern New Jersey, with plans to add several other cities in early '99, including Boston and New York.
"By the end of ('98) we will pass close to two million households," says Bell Atlantic retail services group President Bruce Gordon.
Although Bell Atlantic is taking several steps beyond what other telcos have done to make ADSL consumer-friendly, including price breaks for customers who give up cable data service for Infospeed, it's clear the telco faces the same fundamental challenges others face with the technology, starting with its coverage limitations and relatively high costs.
Infospeed, when packaged with Internet access from Bell Atlantic.net and a customized version of the Snap portal service from the joint venture of CNET and NBC, costs $59.95 per month for access at "up to" 640 kbps, $109.95 for up to 1.6 Mbps access and $189.95 for 7.1 Mbps.
During what officials termed its "promotional period," the company will charge $99 for connection and $99 for modems, discounting the latter by 50 percent in cases where the customer is changing out cable data service for Infospeed. The company also said it will waive additional equipment and wiring costs for customers who take the service from Bell Atlantic.net during the promotional period.
Bell Atlantic has set up an online on-screen provisioning interface that will tell customers immediately whether they are on a line that qualifies for ADSL, and which types of ADSL they can get, notes Pete Castleton, director for data products. "We think the key piece that differentiates Bell Atlantic's rollout from other telcos is that we have started with a strong foundation that covers all the areas essential to making this a successful consumer service," Castleton says.
That foundation includes an ISP partnership program that offers financial incentives to ISPs whose customers stay with Infospeed longer than 60 days. The basic price to the ISP for the 640 kbps service is $39.95. "This is the most comprehensive ADSL announcement we've seen to date," says Yankee Group consultant Craig Driscoll. For example, he says, the Snap portal, or user on-screen gateway, gives Infospeed "the look and feel of a broadband service that can compete head-to-head with broadband cable." And, he adds, Bell Atlantic's marketing campaign, including a point-of-sale tie-in with CompUSA stores and Compaq Computer Corp., suggests the telco has done a better job of setting up for the battle with cable than other telcos.
But cable data service, at average download speeds of 1.5 Mbps and monthly pricing of $40, "is faster and cheaper," Driscoll adds. The Yankee Group, he notes, has projected there will be seven million total broadband data households nationwide by the end of 2002, 4.3 million on the cable side and 2.7 million taking ADSL services.
"Bell Atlantic has taken a step in the right direction," Driscoll says, "but it's not going to clean cable's clock anytime soon in many of these markets."
But there's no denying the window of opportunity for building a beach head in retail distribution has shortened for cable, owing to the longer-than-anticipated time it has taken for the DOCSIS group at CableLabs to complete certification of modems. At this writing, none of the 10 vendors undergoing certification testing had been certified, leaving in doubt whether any products would be certified by year's end.
"Everyone's CMTS (cable modem termination system at the headend) has to be tested against everyone else's, and that hasn't been completed yet," says Levent Gun, vice president and general manager for the cable access group at 3Com Corp. "What tends to happen at this stage is people find points of incompatibility in software, make adjustments and then find new issues, so you can't say definitely how long it will take to achieve interoperability across all vendor systems."
3Com, at press time, was preparing to ship modems to Tele-Communications Inc.'s Spokane, Wash. system, where the MSO is committed to offering units at retail, either through CompUSA and other local stores or through its own customer sales office. TCI is not offering a lease option with the modems, marking the first time cable modems have been available in a market through retail purchase only.
"This is our first market where we're deploying DOCSIS," notes Jim Johnson, director of business development and product management at TCI. "We'll go in and evaluate the market performance before we make any decisions to move to 100 percent retail (distribution) in other areas."
While MSOs here and there have deployed proprietary modems that are available through lease or retail purchase, the move to a retail-only strategy with DOCSIS reflects the reality the cable industry faces as it tries to bring retailers on board with support for mass distribution of the product. In many cases, retail chains are telling MSOs that, if they want to see the modems sold in stores, they'll have to forgo leasing them so as to avoid cannibalizing the retailers' market.
"Retail support is definitely there for cable modems, because, even though they know they can't sell thousands of units at this stage, they know cable modems will draw a lot of traffic," Gun says. "But we're hearing from a lot of retailers that they don't want to be putting modems on their shelves if the MSO is leasing them."
How the retail sales strategy plays out in Spokane will have a lot to do with how TCI shapes its DOCSIS modem distribution plans elsewhere, Johnson says. The big question TCI and the rest of the industry face is whether requiring consumers to buy modems at retail, with 3Com's units priced at $319.99, will benefit or hurt penetration. While the upfront cost might turn some customers away, the strong marketing support, combined with the widespread manufacturing support that comes with retail distribution of modems, could more than offset the downside, Johnson says.
Further complicating the choice for MSOs is the fact that, notwithstanding the telcos' slow implementation of G.Lite, several manufacturers are preparing to introduce modems, including units built into PCs, that have chipsets built to the G.Lite spec and that also work with the current state-of-the-art analog dial-up modem, the V.90 or 56 kbps product line. Officials at Lucent Technologies Inc., for example, say the firm's new Wildfire G.Lite chipset, now in production, will be included in several vendors' products shipping in the first quarter.
"The industry has proven it can avoid a repeat of last year's 56K modem standards battles," says Kevin Cone, strategic marketing manager with Lucent's Microelectronics Group. "We agreed on the DSL Lite line code early, and drove the standards process along in an expedient way."
Thus, long before telcos are offering G.Lite-based services in their markets, consumers will be getting a marketing message at their retail outlets telling them that they can purchase PCs or modems that are "ADSL-ready." "I think you'll see some modem suppliers bringing equipment to market very soon that operates at 56 (kbps) and comes with G.Lite functionality that can be implemented later on with a software upgrade," says Fujistu's McDonald.
Orckit, which supplies core silicon as well as complete ADSL system components, is in negotiations with a number of potential OEM (original equipment manufacturer) customers in preparations for introducing modems into the retail distribution chain "in the next few months," says Bill Dorsey, strategic marketing manager for Orckit. These manufacturers will have to test their devices for interoperability with Orckit's and other vendors' G.Lite CO gear before the software implementation is undertaken, but the existence of the modems at the retail level is sure to put pressure on the cable industry to secure a retail presence for its modems.
Cable also has to deal with the fact that customers purchasing 56K modems that are upgradable to G.Lite are doing what they're already accustomed to doing when it comes to buying modems, which is to buy the next step up in the line of units that connect to their telephone lines. As many analysts and retail chain executives have noted, moving to cable-based distribution requires a shift in orientation on the part of customers at the point of retail purchase, which makes it all the more important that cable's retail marketing message be linked to the availability of cable modems as the only viable option for customers who want access to high-speed data services now rather than later.
Retailers sense an opportunity to play one side against the other, further complicating the cable industry's approach to the retail distribution issue. For example, Radio Shack, which has already signed a distribution agreement for ADSL modems to be marketed under the Sprint ION (Interactive On Demand Network) service logo, is making it clear it wants a piece of the action going beyond its cut of the retail hardware unit price, notes Rick Borinstein, senior vice president of merchandising at the national retailer.
"We want to participate in the downstream revenues," Borinstein says. "We're not interested in just the hardware sales piece."
Radio Shack believes share of revenue deals are fair exchange for its 7,000-store reach and willingness to train sales personnel to work with customers in making their choices of services, whether in DBS, cellular or high-speed data, Borinstein adds.
The risks and uncertainties surrounding the retail distribution question ensure that it's going to take quite awhile for the cable industry to sort out just what the retail role will be in promoting high-speed data sales, says Dick Day, vice president and general manager of the marketing division within Motorola Corp.'s Multimedia Group.
"Retail distribution is a very necessary ingredient, but it's not a panacea," Day says. "It's going to start small and grow over the next couple of years."
What MSOs have to be careful about is ensuring that, in the transition to retail, their customers continue to register the same high levels of satisfaction with the service they have now, when the MSO is directly responsible for handling technical problems, Day notes. And, he adds, from a retailer perspective, stocking cable modems may not be a particularly appealing proposition if there are several cable companies in the market, each with different high-speed distribution footprints and strategies.
Nonetheless, Day sees the transition to retail as inevitable. In fact, he says, Motorola is preparing to announce retail affiliations of its own in conjunction with introduction of its DOCSIS modems, now slated to arrive in the market by late first quarter of next year.
Clearly, cable will have a headstart, given that the certification of DOCSIS modems will ensure interoperability of units in retail stores at a moment when telcos' G.Lite services are still in abeyance and interoperability on that front is still being tested and certified. But, equally clearly, the presence of G.Lite modems in retail stores will quickly become a force to be reckoned with once telcos move to the new platform.
Thus, no matter how the initial retail-only ploy plays out in Spokane, cable interests appear to have little choice but to push hard on the retail front.