Broadband's paper tiger

Why dial-up isn't dead and isn't going away Walk down the aisle of virtually any telecom trade show, and the word will come screaming at you from every direction: broadband.

Any place a marketing person can post the word - on banners spanning show booths, on buses transporting people to and from the show and even in convention center rest rooms - they try to give the impression that broadband is virtually everywhere.

Like most victims of hype, though, reality tells a different story. Yes, cable companies and DSL providers have made impressive gains. But like the gray market in other industries, the progress of broadband is actually helping create increased demand for simple dial-up connections. The result is that funeral arrangements for dial-up have been put on indefinite hold. The proof is in the numbers.

Of the 52 million U.S. households online in 2000, 83% - or roughly a little more than 43 million - get access through dial-up connections, according to Jupiter Communications. By 2003, broadband will have made great progress, with Infonetics recently forecasting that the DSL/cable modem infrastructure market will reach $1.5 billion by third quarter 2001. However, the number of dial-up users still will be 77% - or 52 million - out of 68 million online U.S. households.

In fact, many see increased use of broadband as a positive for dial-up providers.

"By spending money on advertising for cable modems, cable operators are using their money to educate the public about what's available," said Russ Intravartolo, CEO of StarNet, which provides access aggregation service for dial-up ISPs. Even with margins squeezed to the point of barely existing, anything that makes more people aware of the Internet is positive, he said. "There's a constant in the industry and that's that consumers will pay for access."

Driving much of the growth is a second wave of Internet users that either don't own PCs, have fewer needs from an online service or simply won't pay the additional $20 per month for high-speed service. With all three groups, ISPs see their greatest numbers coming from access devices such as set-top boxes, game consoles and wireless phones.

The rollout of broadband services also has been missing the geographic mark, according to a September report from Forrester Research. The result is that a metro market such as Cincinnati has a high adoption rate but ranks low in demand, while areas such as Raleigh-Durham/Chapel Hill, N.C., have high demand but low adoption rates.

Many users also live in areas where the density isn't great enough to offer cable modems, and local telcos are simply charging too much for access to make it worthwhile for DSL providers, said Dick Jalkut, president and CEO of Pathnet, which provides wholesale services for ISPs. "If you're an ISP, you haven't gone into these markets because you can't afford to," he said.

However, the company is seeing a huge increase in interest for its service from dial-up providers wanting to expand service. "In telecom, there's a rising tide raising all the ships," Jalkut said, noting that the company already booked more than $200 million in sales from January through late October.

All of which is leading to increased opportunities, contrary to many predictions. Just a few years ago, analysts predicted a mass consolidation of ISPs with only a few dozen left standing, said Mark Chestnut, director of ISP and application service provider business development for Microsoft's Network Solutions Group. "Here we are in 2000, and we have 4000 ISPs and it doesn't seem to be slowing down."

The new V.92 standard also will help. The standard, which will be supported in new modems, includes a number of features that will appeal to single-line residential users such as "modem on hold," which let users take incoming calls without disconnecting from the Internet, said Dan Geiger, director of product marketing for Lucent's InterNetworking Systems. "There's a perception that dial-up is dead," he said. "That just isn't true."