Cable Modems

Jill Stewart

A cable modem is an external box ‘designed to connect a personal computer (PC) to a TV coaxial cable line to provide access to the Internet and other on-line services’ (PWWTC 1997: 95). A cable modem offers high speed Internet access through a cable television network, serving as an alternative to slower (low speed) modems that connect PCs to the Internet over telephone lines (PWWTC 1997).

Understanding advances such as cable modems in the cable industry is important because ‘the traditional twisted-pair wire, which has served us well for voice and low-speed computer text applications, is inadequate for today’s graphically intensive multimedia applications’ (PWWTC 1997: 3). For example, the multimedia capabilities of a cable modem could be used to clip video to an electronic mail message (PWWTC 1997). Thus, many analysts believe a cable modem is the best modem to have for Internet-based multimedia applications, such as animation and audio/visual communications, such as desktop videoconferencing (Davis 1998).

TECHNOLOGY

WHAT DISTINGUISHES A CABLE MODEM FROM OTHER MODEMS?

Modems ‘make it possible for established communications channels to support a wide variety of data communication, such as electronic mail between personal computers, or the downloading of audio-video files from a database server to a home computer’ (Britannica Online 1998). Similar to other modems, a cable modem receives and sends data by modulating and demodulating signals. However, cable modems differ from other modems because ‘they (also) function like routers that are designed for installation on cable television networks’ (PWWTC 1997: 95).

HOW DOES A CABLE MODEM WORK?

Internet data is delivered into the home or office over a coaxial cable line that also carries television signals. Thus, the information travels like a TV channel through the coaxial cable line at speeds of 800 Kbps to 3,000 Kbps into the home or office. From there the cable modem separates the data from the television signals and directs (or ‘routes’) the data to the PC and video to the television (Reinhardt 1998).

WHAT TYPES OF EQUIPMENT IS REQUIRED?

To access the Internet via cable television, the equipment needed includes: a PC and a Web browser (purchased separately by the consumer), a cable modem, installation of a network interface card into the PC and other access software for on-line services, all of which are provided and installed by a local cable company. No telephone line is required, which is beneficial for two reasons. One, the phone line is available for phone calls. This way a person can avoid missing phone calls at the expense of using the phone line for Internet access. Second, the task of dialing in every time when the user wants to receive Internet access is eliminated. Instead, users receive ‘constant connectivity,’ (meaning a continuous connection) which saves the user time and reduces the chances of getting a busy signal (Davis 1998: 10). Therefore, a user can count on having a reliable Internet access service since a user is always connected to the Internet. Furthermore, users do not have to subscribe to cable television services in order to receive Internet access, but are required to purchase or rent a cable modem from their local cable company (Komando 1998).

However, in order for a cable network to be capable of high speed two-way transmission (for sending and receiving voice and data at high speeds), the cable infrastructure must be upgraded to a hybrid fiber/coaxial (HFC) network (PWWTC 1997). This is because cable systems were initially designed for one-way services (for sending video signals via cable lines to subscribers) (PWWTC 1997). Upgrading cable networks takes time but can only be done by cable companies in order to be able to provide high speed two-way transmission capabilities (Komando 1998).

In the meantime, or in some cases to avoid upgrading cable infrastructures, some cable modems being offered provide high speed access to the Internet known as the downstream connection (download speed from the host to the user), but use low-speed telephone lines to transmit information sent by a user known as the upstream connection (upload speed from the user to the host). Consequently, sending data over telephone lines travels at slower speeds of up to 33.6 Kbps (Reinhardt 1998). (See Figure 1 for cable modems currently available in 1998 and their speed capabilities).

BUSINESS

INCENTIVES EXIST FOR CABLE TO UPGRADE ITS NETWORKS:

Although it is estimated that ‘by 1999, cable companies will spend $2.36 billion a year to upgrade their systems for new services, up from $1.78 billion a year ago,’ there are financial incentives for cable companies to provide low-cost, high speed Internet access (Grover 1996: 78). First of all, ‘providing Internet access is a $6.5 billion business that is expected to double, to $13.3 billion, in the next four years,’ (PWWTC 1997: 82). Secondly, cable companies need to broaden their services as a way to hold onto their market share since their competitors, telecommunication and satellite television companies (Direct Broadcast Satellite systems) are also offering Internet service to attract new customers (PWWTC 1997). Consequently, most cable companies have upgraded their networks in an effort to broaden their product line. For example, Time Warner, the second largest cable company in the U.S., has already upgraded half of all their networks to support high speed two-way transmission (Desmond 1998). Similarly, TCI, the largest cable company, plans to have all of its plants upgraded by the year 2000 (Desmond 1998).

Besides investing billions of their own money, some ‘cash-poor’ cable companies are forming alliances with other cable or telephone providers to cut costs because ‘by buying infrastructures instead of building them, costs--and hence, rates--should be kept lower (to attract customers),’ (PWWTC 1997: 132). Examples of such alliances include AtHome, the ‘high velocity Internet service’ offered by Tele-Communications Inc. (TCI), Cox, Comcast, Cablevision and Marcus Cable. Also, on 10 December 1997, Time Warner Cable, which offers ‘Road Runner High Speed Online Service’ merged with US West Media Group. US West Media Group will bring its customers from its ‘MediaOne Express High Speed Online Service’ to the joint venture.

In addition to entering into alliances, many cable providers are bundling their services to attract customers by offering Internet access, local, long-distance and wireless phone service, in addition to cable television at discount rates (PWWTC 1997). Consequently, intense competition and bundling service offerings will drive prices down benefiting consumers (PWWTC 1997).

COSTS OF CABLE MODEMS AND INTERNET SERVICE WILL BE CRITICAL TO SUCCEED IN THE MARKET

According to a 1997 Yankee Group survey, price is an important factor if an Internet Service Provider (ISP) hopes to gain a share of the consumer market. Results from their ‘survey of over 1,900 U.S. households found that more than two-thirds of Web surfers want faster access to the Net. But fewer than 10 per cent are willing to dole out even $40 a month (for) Net access,’ (PWWTC 1997: 83).

This may be the primary reason why cable companies are the leading Internet Service Providers as of 1997. Cable companies have an estimated ‘100,000 subscribers--more than twice the number of Digital Subscriber Line (DSL) users,’ (PWWTC 1997: 82). This may be due to the fact that AtHome (a cable Internet access service) costs between $30 to $60 a month for high speed access and unlimited Internet use, whereas DSL users have to pay $200 a month for the highest speed DSL connection (PWWTC 1997). (See Figure 2 for a comparison of Internet service systems and costs).

There is also a one time installation charge that varies between cable ISPs but ranges from $99-$175. Other ISPs generally charge between $75 and $250. Furthermore, cable modems eliminate the cost of having another phone line specifically available for a telephone modem (Komando 1998).

HISTORY OF INTERNET SERVICE PROVIDERS

As of 1998, there are many competing Internet Service Providers. Because Internet use by the public has increased, many companies now see the Internet as ‘both a threat and an opportunity,’ (PWWTC 1997:131). In fact, besides cable companies, telephone and satellite television companies are investing billions of dollars into providing Internet access ‘to capitalize on opportunities and prevent possible lost revenue as interest in phone, video, paging, and other messaging applications over the Internet grows’ (PWWTC 1997:105).

What consumers may not realize is that both cable and telephone companies had the technology for high speed Internet access but were reluctant to offer it because ‘the cost of providing high speed service, as much as $2,000 per person, was just too high’ (PWWTC 1997:80). However, competition, stimulated by the Telecommunications Act of 1996, has prompted the two industries to offer Internet access service (PWWTC 1997). Furthermore, ‘unlike interactive-TV, which required specialized networks to be built and consumers to purchase expensive set-top boxes, the on-line world is cheap and readily accessible. It uses the existing worldwide Internet infrastructure, actually an amalgamation of more than 50,000 smaller networks around the world’ (PWWTC 1997:438).

APPLICATIONS

NO MORE ‘WORLD WIDE WAIT’

The primary use for cable modems is providing high speed Internet access that is 100 to 1,000 times faster than telephone modems (PWWTC 1997). Dan Bricklin, a software designer was quoted as saying, ‘It’s as fast as taking a book off of the shelf,’ (Aguayo 1997: 45). Although cable modem speeds vary, they are generally faster than DSL telephone connections. For example, ‘while AtHome can process three million bits per second, the top DSL speed in use is 1.5 million bits per second’ (PWWTC 1997:82). (See Figure 3 for more speed comparisons.)

Like traditional modems, cable modems offer consumers and business people access to electronic mail, online shopping, bulletin-boards, remote network access, information services, such as online newspapers, online chat rooms and business services, such as online banking (PWWTC 1997).

However, cable modems also provide ‘access to streaming audio, video, and CD-ROM servers or local content such as community information and services’ (PWWTC 1997:96). This is because a cable system provides high bandwidth that can produce on-line content from ‘networked multimedia and bit-intensive applications, such as high-resolution imaging, streaming video clips and high-quality soundtracks’ (Davis 1998:10). ‘Streaming allows Internet users to see and hear data as it is transmitted from the host server instead of waiting until the entire file is downloaded’ (PWWTC 1997:441). Medical and engineering imaging as well as video production are examples of applications that require high bandwidth that a cable system provides (PWWTC 1997). Thus, the higher bandwidth provided by a cable system brings higher-quality multimedia to a user (Davis 1998). Furthermore, cable modem Internet access enables a user to add ‘synchronized video, sound, graphics, music, and animation’ to text that can then be sent through the Internet (PWWTC 1997:441).

BUYERS BEWARE!

Cable modems have two disadvantages. Cable modems cannot guarantee a user high speed access to the Internet as the number of users increases. This is because a user has to share the cable system bandwidth with other customers in their neighborhood (PWWTC 1997). As a result, in addition to slower Internet speeds as more people sign up to use it, there is a chance someone could gain access to the files of their neighbor thereby creating a security risk for all users (PWWTC 1997).

However, DSL modems provided by telephone companies have disadvantages too. DSL modems are not well-equipped to carry video signals and to receive optimum service, a user has to be ‘within three miles of a phone company central office’ (PWWTC 1997:83).

DRIVING FORCES

THE POPULARITY OF THE INTERNET

Fact: As of 1997, there are an estimated 50 million Internet users worldwide (PWWTC 1997).

Every year between 1985 and 1996, the number of Internet users doubled (PWWTC 1997). In the U.S., 40 per cent of children are choosing to surf the Internet as an alternative to watching television (PWWTC 1997). Furthermore, as of 1997, every month the number of subscribers to an Internet service provider increased by 15 per cent or more (PWWTC 1997). Economic factors such as these are shaping the production of cable modems. As interest in the Internet grows, so does the number of Internet Service Providers. Like telephone and satellite companies, cable companies are hoping to profit from the growing popularity of the Internet in the 1990s.

Social factors are also shaping the use of cable modems. For consumers and business people,

‘the Internet has become a daily part of information gathering and transacting business’ (PWWTC 1997:1). In fact, as of 1997, personal computers (PCs) can be found in 40 per cent of the households in the U.S. (PWWTC 1997). Consumers and business people are also reportedly in demand of ‘more compelling audio, visual, and textual content. They want easier and less expensive ways to access the content’ (PWWTC 1997:35). The demand for high speed Internet access is also in large part due to the fact that telephone modems do not offer the same quality or speeds to deliver the audio, video, graphics and other imaging content that more and more web pages contain in 1998 (Davis 1998).

POLICY

DEREGULATION FACILITATED THE DECISION FOR CABLE TO BECOME AN ISP

Before the approval of the Telecommunications Act of 1996, ‘regulation has been one of the major constraints to the availability of new services’ (PWWTC 1997:3). However, prior to deregulation, the cable industry was protected from other competitors such as the telephone companies, who were prohibited from entering the cable market. Therefore, in some ways, deregulation has caused pressure for both cable and telephone companies to expand their services or risk losing market share and revenue to new entrants in their respective markets.

OPPORTUNITIES, PROBLEMS AND PROSPECTS

OPPORTUNITIES: CABLE’S ADVANTAGE OVER OTHER ISPs

Many analysts predict cable companies have a good chance of acquiring the residential market for Internet service. Although most businesses do not have cable television hookup, there are 60 million cable subscribers who do (Grover 1996). As a result, analysts believe since cable is offering Internet access at the highest speeds and at the lowest prices, consumers are likely to purchase cable Internet service instead of the service offered by phone and satellite competitors (PWWTC 1997). Furthermore, cable ISPs will likely attract residential consumers to its service as more cable companies upgrade their networks for two-way traffic transmission thereby providing higher upload speeds (PWWTC 1997).

PROBLEMS: RETALIATION FROM TELEPHONE COMPETITORS

Unlike the cable industry that earns $30-billion-a-year, one of cable’s competitors is the local telephone industry, which earns $110-billion-a-year, (Kupfer 1998). Consequently, because of their financial resources, the regional Bell telephone companies in conjunction with Microsoft, Compaq Computer and Intel has produced a new and better variation of DSL technology and will offer its new DSL modem by the end of 1998. The new DSL modem reportedly has similar cable modem capabilities, such as offering the same high speed Internet access and ‘constant connectivity,’ which eliminates the task of having to dial up every time the user wants to receive Internet access. Instead, a user is always connected to the Internet (Komando 1998:1D).

In addition to the intense competition from the telephone industry, cable modems may face similar competition from satellite ISPs in the near future. As of 1998, satellite ISPs offer speeds slower than cable modems, but analysts predict satellite speeds will increase as well. ‘Downloads of 10 million bits per second are possible in the next several years’ (PWWTC 1997:83).

PROSPECTS: DATA MARKET WILL CONTINUE TO BE A PROSPEROUS ONE

Some analysts predict cable modems will bring huge profits to the cable industry. ‘By 2000, as many as seven million homes may have cable modems, pulling in $1.3 billion in new revenue’ (Grover 1996:75). Other analysts predict over the next three years, ‘data will become a larger market than voice’ (PWWTC 1997:131).

FIGURE 1: CABLE MODEM PRODUCTS, PROVIDERS AND SPEED OF VARIOUS CABLE MODEMS

 Source: Forward Concepts Research Report: Broadband in the Local Loop (January-February 1998)

FIGURE 2: INTERNET SERVICE SYSTEMS AND COSTS

 Source: Business Week (February 16, 1998)

FIGURE 3: SPEED OF INTERNET SERVICE SYSTEMS

 Source: AtHome Network Website (@Home Web Site: http://www.home.net)

REFERENCES

Aguayo, J. and Palmeri, C. (1997) ‘Hold the obituaries’, Forbes, 24 February.

Colman, P. (1996) ‘Cable TV in 1997: nowhere to go but up’, Broadcasting & Cable, 9 December.

Davis, A. (1998) ‘Cable modems: a high-bandwidth solution to Internet access’, Desktop Video Communications, January-February.

Desmond, E. (1998) ‘Malone again’, Fortune, 16 February.

Grover, R. and Lesly, E. (1996) ‘I-Way or no way for cable? It’s still chasing the interactive-TV dream’, Business Week, 8 April.

Komando, K. (1998) ‘When cable modems and DSL compete, consumers will win’, Los Angeles Times, 16 February.

Kupfer, A. (1998) ‘How hot is cable, really?’ Fortune, 16 February.

Online. Available: http://www.home.net (March 1998). (AtHome Network Web Site)

Online. Available: http://www.rr.com (March 1998). (Road Runner Network Web Site)

Online. Available: http://www.eb.com:180/cgi-bin/g?DocF=micro/398/57.htm (March 1998). (Britannica Online Web Site)

The Price Waterhouse World Technology Centre (PWWTC). (1997) Technology forecast: 1997, California: Price Waterhouse World Firm Services BV, Inc.

Reinhardt, A. (1998) ‘Warp speed ahead’, Business Week, 16 February.

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