Cable goes corporate:

When Ross Perot talked about the great sucking sound America would hear if the North American Free Trade Agreement was approved, he probably didn't have the telecom industry in mind. But if telcos listen closely enough, they may hear that same sound coming from T-1 and other high-speed data revenue streams.

The culprit in this case isn't Mexico-it's cable operators. Those same companies that have taken barbs for more than a decade about poor service are now providing high-speed Internet connections and other data service to commercial users. In several markets, cable operators are targeting a diverse group of businesses ranging from movie studios and large glass manufacturers to mom-and-pop Internet service providers.

A closer look also reveals that cable operators are not taking a unified approach to the market but are letting particular customer needs and local market conditions dictate their services. That strategy also makes it difficult for regional telcos to develop a cohesive defensive strategy. What's more, cable operators are coming to market with services that rival-and often surpass-T-1 at rates that are certain to challenge the traditional telco economic models.

Cable rolls out options "By and large, it's just a matter of positioning our transmission services against Pacific Bell," says Kent Libbey, project manager for MediaOne Connect, describing how the company approaches potential customers. MediaOne Connect is a division of MediaOne, the cable modem service provider, which operates a fiber-based network in Los Angeles.

In its initial rollout, MediaOne Connect is offering four packages. The one that comes closest to the T-1 market, MetronetOne, lets users choose between asynchronous transfer mode and Internet protocol (IP) networks to connect their local area networks. The company also rolled out InternetOne, an Internet access service that gives business users a permanent high-speed connection, and D-One, a service that sends uncompressed serial digital video between studios and production facilities (Figure 1).

MediaOne is pricing the services from $1000 a month for the 4 Mb/s Internet access service to $100,000 a month for the highest level of video service. "We know we have to be competitive with Pac Bell," says Libbey, who also notes the growing list of competitive local exchange carriers in the L.A. market.

Ironically, one of the newest competitors on that list is @Home. Through its @Work division and its partner Cox Communications, the cable modem service provider has started rolling out business data services in Orange County. Unlike MediaOne, though, @Work clearly is focused on small businesses with fewer than 25 employees. Using an architecture similar to its residential cable modem service, Cox's @Work offers Internet access with download speeds up to 1.5 Mb/s and uploads of 128 kb/s, bursting up to 768 kb/s.

Additionally, the company offers @Work Remote, a virtual private networking solution for connecting home users to company LANs. Initial pricing for the Internet access service starts at $265 a month for five users and scales up to $595 for 25 users.

Since Cox and MediaOne began rolling out services early this year, both have reported increased interest. MediaOne, in particular, believes it may have a hit on its hands with its D-One service, which competes directly with a Pacific Bell service that transmits video between production houses. Already, MediaOne has signed three post-production companies and expects to add several more as the film industry continues pushing post-production duties to remote locations (Figures 2 and 3).

"D-One is by no means the sole product we're concentrating on and I don't expect it to be the dominant product, but so far it's been received very well," says Libbey.

@Work is also reporting some success within the high-bandwidth demand market. At the beginning of this year, the company counted some 300 @Work Internet customers nationwide and had more than 200 additional agreements to begin installing service (Figure 4). The company also will begin an intense marketing campaign for @Work through its partnerships with Tele-Communications Inc., Cox and Comcast.

A third operator, Road Runner, is focusing its business efforts on both small and large businesses, depending on the market. In Columbus, Ohio, the company is targeting small companies with high-bandwidth needs. In contrast, the company is focusing on large corporate clients such as Corning Inc., Binghamton, N.Y.

Its Professional Services package, geared toward small corporate clients, includes a single PC Internet connection, five e-mail addresses and 15 Mbytes of Web hosting storage space for $75.95 a month. For larger companies, the LAN Services package includes a connection to the customer's proxy server, a dedicated IP address and 25 Mbytes of Web space. In Hawaii, the company teamed with the Bank of Hawaii to offer Web-based financial services for small businesses.

Small business, tough market While such alliances may proliferate and cable operators likely will capture a portion of the market, selling to smaller businesses that don't have ultra high-bandwidth requirements will be a completely different challenge.

For one thing, cable operators do not typically have the physical plant reaching the doorsteps of small businesses. To solve that, most are building their own local fiber-based backbones and connecting directly to the Internet via public access points.

Second, cable operators traditionally have not provided service to business users and often aren't properly staffed to handle more demanding business data customers.

Perhaps the biggest roadblock in the way of cable operators providing small businesses with Internet access, though, is the cable modem itself.

Bringing 1.5 Mb/s to the home through a shared pipe works well for home users who are accustomed to dealing with 28.8 kb/s dial-up modems. But in the corporate environment, where users often send sensitive data between high-speed networks, a network that shares bandwidth by nature will be open to security breaches and will be a difficult sell for cable operators.

"There needs to be a lot more security and the ability to do different levels of quality of service," says David Lynn, director of product management and business development with Samsung.

However, based on the standards work done thus far by Cablelabs, the industry's research and development consortium, cable operators may have a difficult time providing secured networks over cable modems for the next few years.

In the first version of the multimedia cable network systems (MCNS) data-over-cable service interface specifications, the standard to which most modems are built, security is mentioned but not completely defined, says Wayne Mackey, senior product manager for Bay Networks. "There are still some changes being agreed upon in full, but the baseline security provides encryption at the [the media access control] layer between the cable modem and the headend so you can have all of your traffic encrypted," Mackey says.

However, businesses that want to conduct secured transactions with cable modem users require a greater level of security. Several cable modem vendors are working on the issue, but there appears to be no consensus on how cable operators will approach it.

"They all understand that this is critical," says Mackey.

Bay Networks is approaching the security issue by looking at three customer groups: the high-speed Web surfer, the cable commuter who wants to telecommute and the small business.

"We definitely believe there's a business opportunity for the cable operators, whether that be the small office or the SOHO or the guy who telecommutes," says Mackey. "Each one of these market segments has unique requirements and each has different price points."

In all three cases, the company is experimenting with the IP security protocol, which defines encryption at the network layer. With cable commuters, Bay initially tested it within the PC. In the next few months, the company will put IP Sec in the cable modem and connect the modems to Bay's Extranet switches, which will sit on corporate backbone networks.

"It requires some kind of tunneling mechanism," says Mackey. "In order to do that, we think the best mechanism is [the virtual private network] through the IP Sec protocol. We believe IP Sec is the predominant mechanism that will be used."

The quality goes in Just as important to cable operators' success in the business market will be providing quality of service (QOS) levels that differentiate users. To do that, QoS must be implemented at both the cable modem and the headend, says Lynn. In existing cable modems, that task is handled differently depending on the vendor. Most, including Motorola Multimedia and Phasecom, are using management software to set minimum and maximum data throughputs.

"You can go through and have different levels of service where one user has 3 Mb/s downstream and another has 1 Mb/s," says Jeff Walker, senior manager of product marketing for Motorola. "The way you do that is metering it out at the headend."

Phasecom's approach uses a bandwidth management tool that allocates bandwidth based on IP address or predetermined traffic categories. The company also has developed a scheme to parcel out excess bandwidth using a priority-based system.

Regardless of their approach, vendors are counting on the second version of MCNS to spell out the details on guaranteed bandwidth over the cable plant.

"Right now you can have best-effort, committed information or a constant bit rate service," says Walker. "MCNS still is in the process of defining what QOS should be."

With that work completed, cable operators should have a full arsenal of network weapons to attack the business market.

"We can offer performance that is beyond compare up to 622 Mb/s," says MediaOne's Libbey. "What's going to really give this market a boost is when all the tools are in place, including the content. When it is, people will see a huge difference."