Why Most Of Us Can't Have Broadband

At this point, no one knows who will pay to overhaul the nation's enormous infrastructure

The postcard was a cruel tease. For just $40 a month and no startup charges, Northpoint Communications (NPNT) and partner Microsoft Networks (MSFT) told me, I could tap the Internet with high-speed digital subscriber line (DSL) service at home. I knew better because the offer came just a day after Verizon Communications (VZ) told me I cannot get DSL now or in the foreseeable future. The card was particularly puzzling because Verizon, over whose wires the service would run, is in the process of acquiring Northpoint. Meanwhile our cable company, Comcast (CMCSA), says it will offer Internet access in my suburban Washington neighborhood--someday.

I'm disappointed, but not surprised, to be stuck among the 95% or so of Americans without high-speed Internet service. Despite all the hype and talk of broadcast-type video and CD-quality audio over the Net, we are a dial-up nation, and we are likely to remain that way for a long time to come.

The figures tell the story. Mike Lowe, market analyst for Cahners In-Stat, estimates that as of the end of September, there were 1.6 million DSL customers, about 1.3 million of them residential. The two major providers of cable Internet service, Excite@Home (ATHM), controlled by AT&T (T), and Time Warner's Road Runner (TWX), have about 3.3 million subscribers. Those numbers add up to less than 5% of the 105 million households in the U.S.

While broadband services are growing very rapidly--174% in the past year for Excite@Home--the absolute number of subscribers added is relatively small. Issues of money and technology are likely to keep a cap on the number of new subscribers. Both interactive cable and DSL require vast infrastructure overhauls that financial markets are unwilling to fund. Stung by a sinking stock price and plunging profits from long distance, AT&T has abandoned its grand dream of reinventing itself as a provider of voice and data services over the cable network it purchased. Instead, it will spin off AT&T Broadband, leaving open the question of who will finance the overhaul of the nation's largest cable network.

UPGRADE VICTIM. The DSL situation is grimmer. The technology runs high-speed service over existing copper phone lines but is subject to lots of technical restrictions. For one thing, the customer must be within 15,000 feet of a central office, and that's as the wire runs, not as the crow flies. Furthermore, there must be an old-fashioned analog line all the way from the customer to the switch.

I am a victim of Verizon's upgraded phone technology. My service comes from a "digital loop carrier," a metal cabinet down the street where my phone signals are digitized, then relayed to the central office on a high-speed link. While some carriers, notably BellSouth (BLS), provide DSL through that sort of setup, Verizon, which admits that it is struggling with demand from the homes it can serve, has no plans to follow suit.

Verizon estimates that because of distance and other restrictions, just over half of its subscribers will ever qualify for DSL service. Furthermore, cable companies often can let customers install their own Internet service just by hooking up a modem, but DSL usually requires sending a crew to every home--and trucks and crews are in very short supply.

The situation isn't completely hopeless. Startup StarBand Communications will begin offering two-way satellite Internet access in December. It requires a clear view of the southern sky. At $70 per month after about $600 in startup costs, it's more expensive than either DSL or cable. But you can get it anywhere you can set up a satellite TV antenna. Sales and installation are being handled by Radio Shack and Echostar (DISH), both experts in mass deployment. Hughes Electronics' (GMH) DirecTV plans to offer a similar service next year.

The advantages of broadband are impressive: an Internet connection that is always available and fast enough for content, such as high-quality audio, and applications you can rent and use as required. No wonder providers can't meet the demand. Unfortunately, most of us will be on the outside looking in for a long time to come.

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