Private Broadband? It’s Here, It’s Huge.
Jimmy Schaeffler, The Carmel Group

The idea of one big pipe sending gobs of data, voice, video and audio (and who knows what else), simultaneously, to one consumer, is essentially the concept behind broadband. And broadband is the new craze, almost as hot as was the term, "interactive," not too many years ago.

Today, there are five key sets of competitors trying to bring broadband to their existing subscribers, and to what each hopes will be tens of millions of fresh, new, broadband subscribers. These five include the signal providers in the satellite, wireless, telephone, over-the-air broadcast and cable service areas.

Measuring the Playing Fields

The key to the possible future success of broadband is the number of households (HHs) that have computers and that are hooked up to the Internet today. This is a staggering sum equaling almost half of the 100 million TVHHs that populate the American landscape, circa 2000. As of a year or so ago, there were only about a half million broadband subscribers among all of the four sets of U.S. signal providers. These were split primarily between cable’s and telephone’s Digital Subscriber Line (DSL) services.

For the year 2000, this growth could be almost meteoric, with at least several million more broadband subscribers joining the fray. In fact, for the lead players, i.e., cable and satellite, the potential is huge. As an example, by year-end this year, cable is expected to upgrade its two-way capability reaching almost three quarters of its total 65 million subscribers, offering capacity of at least 750 MHz, which is generally recognized at the minimum for solid two-way wired capability. For satellite, GM’s Hughes Network Systems (HNS) has already announced a year-end 2000 two-way service, operating from its DirecPC platform, which will be followed soon after by a roll-out of GM Hughes’ new alliance with AOL, which will be termed AOLTV.

In fact, a review of the Yellow Pages for most large cities today shows, in most cases, more than a dozen potential providers of broadband services. Expect that trend to continue, as more and more different telecom, computer and media companies seize the opportunity of broadband.

The Satellite Guys

In the U.S. today, six key service operators have been announced that are preparing to carry broadband services to entire continents, representing hundreds and, in a couple of Asian instances, billions of potential subscribers. These six players include four from GM Hughes, one from Israel-based Gilat, and one from Englewood, CO-based iSky. A sampling of other players who have spoken of broadband plans (but who appear to be further down the development chain) include Astrolink, Cyberstar, GE*Star, SkyBridge and WEST.

The Hughes broadband services include a recently-announced PanAmSat service; a 2002-2003 deployment of a new two-way satellite service called Spaceway; and further deployment of Hughes Network Systems’ DirecPC/DirecDuo service, as well as one with AOL by DirecTV, now planned for the first quarter of 2001.

The Wireless Guys

In wireless, the field is best broken down into the services directed toward businesses and those directed toward residential customers. In the former category fall several key players, including NextLink, Teligent and Winstar. On the other hand, aiming at the home-based subscriber will be prominent companies such as AT&T and the recently engaged MCI Worldcom/Sprint entity.

Wireless cable has some significant long term advantages, including the absence of infrastructure, more plentiful bandwidth, major supplier support, and a favorable regulatory environment, plus manageable infrastructure costs and thus infrastructure costs. By our estimates, these will help push the market to almost five million subscribers by year-end 2004. Yet line-of-sight limitations remain a problem, meaning trees, buildings and geographical obstacles will completely block the signals and thus greatly impede penetration in some areas. And significant financial and investment concerns may continue to roil the industry, as they have during much of the past three years.

The Telco Guys

For telcos, the focus is on Digital Subscriber Line (DSL) services. DSL typically uses existing copper wires to carry broadband, which is a fairly cost-effective model today, and certainly forestalls the inevitable expensive upgrade to fiber optic wires. The difficulty with DSL is its inability presently to reach out to HHs that are several miles beyond the telco headend. Big players investing hundreds of millions in marketing, and broadband subscriber growth include AT&T, SBC, GTE, Bell South, Bell Atlantic and US West. Monthly pricing for broadband DSL services currently ranges from $40 to $65, dependent upon the system and the locale.

The Broadcast Guys

The two top players in this over-the-air terrestrial arena are Menlo Park, CA-based GeoCast and Los Angeles, CA-headquartered iBlast. Both players are looking to utilize otherwise "empty" space in a terrestrial broadcast digital pipeline, for the purpose of carrying broadband to the PC. Geocast projects a late 2000 launch, whereas iBlast expects to be operational shortly afterwards in early 2001.

The Cable Guys

Bundling will be big. This is something the telcos and cable guys can and will do well. High speed data, super-digital video, telephony, and messaging services are just a few of the services that will be brought together and sold by one provider via one monthly bill (and one big revenue stream).

For cable, the key to the future is tied to cable modems. Cable began the race to broadband, yet these days the industry may well have difficulty keeping up. Cable is greatly challenged by the battle to upgrade capacity, as noted above, and the battle to develop a two-way service, system-by-system, in thousands of systems, across the U.S. Nonetheless, because of its long-term service, abilities to bundle, existing infrastructure, partnerships, and a "self install" cable modem capability, it is safe to say that cable will —relative to the competitors named above -- likely remain the short-to-mid-term dominant player in the broadband arena.

In Summary

Ultimately, huge sums will be spent by Wall Street and other investors, vendors and services providers — to say nothing of the consumer — in order to acquire the best broadband services. In fact, by our accounting, as of the first quarter 2000, several hundred billion dollars in Initial Public Offering (IPO) money has gone into companies that are espousing this broadband space. Moreover, we estimate subscriber numbers will swell remarkably in the next couple of years, to well over five percent (or five million) subscribers, from today’s U.S. TVHHs base of a bit over 100 million. Moreover, in the private operator’s side of the broadband business, hundreds of millions more in revenue are promised.

Put shortly, this big pipe means big business.

About the author

Jimmy Schaeffler is a subscription TV analyst for The Carmel Group, a publisher and consultancy located in Carmel-by-the-Sea, CA, specializing in telecom, computers and the media. He can be contacted at (831) 643-2222 or by email at jimmy@carmelgroup.com.