The HFC debate

Between the release of the Ken Starr papers and the Clinton grand jury testimony, access to the Internet was close to impossible, unless one has an asymmetrical digital subscriber line account or a cable modem. But few on-line subscribers have taken advantage of such high-speed data accounts, and in most areas of the country, such service is unavailable.

Business users have been able to receive and transmit data from an office environment at fairly high speeds for some time, mostly because many buildings are smart-wired with T-1 (1.54 Mb/s) connections. However, the vast majority of data users are residential. The contest between telephone carriers and cable companies to reach this goldmine of revenues has been slow, even though customer cost increases are almost negligible.

Today, there are fewer than a million customers using hybrid fiber/coax (HFC) cable connections to reach the Internet or to send and receive e-mail. The number of ADSL customers supported by the telcos is just as small. Most subscribers still are connecting at 14.4 kb/s, a snail's pace when it comes to downloading large documents, a load of e-mail messages, or attachments, which are becoming more prevalent. According to some analysts, these numbers are unacceptable in light of the Telecom Act of 1996, and carriers are leaving money on the table and subscribers in a lurch.

A report filed earlier this month with the FCC by the New Networks Institute says RBOCs don't deserve any more regulatory or legislative breaks because they have not made good on the promises they've been making during the past decade regarding such things such as high-speed data networks. The institute was formed in 1992 as an independent agency to monitor the impact of the breakup of AT&T and the creation of the regional Bell operating companies.

The continued monopoly in most markets is cited as one of the reasons telcos have lagged behind in offering advanced data services.

Some cable carriers, most notably MediaOne and Time Warner, have not been sitting idle regarding high-speed data. Having an embedded HFC backbone already in place for their television operations, the next logical step for them was to introduce other services-enhanced Internet access and telephone service-into the homes they already pass with TV.

"The cable industry in the United States is in the process of rebuilding their cable distribution plants using the HFC technology," says industry analyst Ernest Tunmann of TE Consulting, Framingham, Mass. "At this time, about 30% of the total plant mileage has been converted and can offer better TV, faster Internet access, high-speed data, cable telephony, videoconferencing and video-on-demand. It is forecasted that the rebuilding process will take another five years to complete."

Cable or telco? Analysts admit that potential customers are torn between choosing an HFC carrier that entails installation of a cable modem or going with the local telco for fast Internet connection. A recent Forrester Research report estimates that 80% of the data market will be captured by the cable industry by 2002. "The cable guys will tell you that there is no other answer but HFC, and the telephone guys will tell you there is no other answer than DSL," says Bob Rosenberg, president of Insight Research Corp., Parsippany, N.J. Insight found the cost of investing in ADSL-enabled architecture such as POTS is much higher than other technologies (Figure 1).

"The question then becomes, Who's been a little more successful at delivering something?" Pointing out that the telcos have provided reliable service for more than 100 years, he adds that telcos aren't known for innovation and that this is where cable competitors could jump in.

However, Rosenberg is waiting for cable companies to make good on their data promises that began surfacing in the 1970s with videotex, a service that never quite took off. Regarding CATV's move toward high-speed data, he says, "The rollout is very spotty. We're taking a wait-and-see attitude. The raw capacity is there, and they have a wideband pipe. But simply having a pipe there without being able to have valves that control it and a backup system to open and close the valves to monitor the flow through the pipe isn't enough. The valve is the missing element, and we're waiting to see if it's been solved."

Most major telcos are offering ADSL to a limited number of subscribers (Figure 2). But they are hesitant to talk specifically about what they are doing now and what they plan for the future. Most are providing service over their copper and fiber networks, and HFC doesn't appear to be part of the picture. A spokesman for Southwestern Bell says most of its high-speed data business is occurring in 200 California communities, but he declines to provide details.

However, BellSouth has both kinds of networks, and a spokesman says that while the big push now is for ADSL, the RBOC does offer very limited cable modem service in Atlanta. But that's a fluke. "HFC is a network architecture we began using for cable TV delivery, and it was not built with data delivery in mind," he explains. "Our subscribers really have no choice between HFC and our fiber network for data."

John Goldman, BellSouth's communications manager, agrees, saying that 99% of its data customers are being served by copper. BellSouth believes the current connection speed is meeting customers' expectations.

"We think that 1.5 MHz down and 256 kb/s up is good enough for homes and small businesses," Goldman says. "There will be some new business products introduced later this year that will be 3 MHz uplink and 4 MHz down."

GTE, which has been building a state-of-the-art data system that was part of its lure for Bell Atlantic, has no HFC networks for data; that medium is used only for video, and there will be no further HFC buildout by that carrier. In fact, GTE has plans to phase out its HFC network and to install in its place a futuristic, very high bit-rate DSL system, which will go into trials sometime next month.

MediaOne perhaps has the front seat when it comes to data over cable, and the company has rolled out its MediaOne Express high-speed data service and its telephone service in several markets across the United States. The company is by no means past the start-up stage in either of these endeavors, unlike its cable TV coverage. But MediaOne says it will continue to pursue customers aggressively as it builds out and tweaks its HFC network. Company executives admit that customers are split between HFC and ADSL, but MediaOne has its advantages.

Tom Cullen, vice president of Internet services for MediaOne, oversees the day-to-day operations, marketing and sales, and deployment of MediaOne Express.

He also serves as chairman of the Cable Broadband Forum, which was formed to support and promote the deployment of cable modems. He sees his HFC network and its related data services as only growing during the next few years. His company and Time Warner have formed the Road Runner project that eventually will merge both data networks for better service and for economies of scale. The new venture will handle the architecture for the e-mail systems and the back end.

However, each will handle its own customer acquisition, installation, billing and local content.

"At MediaOne, we are on the path to aggressively continue upgrading our network and we think in 1999 we will see a real inflection point regarding the number of homes we can market to," says Greg Braden, vice president of telephony for MediaOne, Englewood, Colo.

"Generally, most cable companies have been building an upgrade capability for the last few years," he says. The size of the addressable market-measured in homes cable modems could be available to between now and the end of 1999-will at least triple, he says. "I'm adding homes everyday. We launch marketing campaigns to new homes every week."

MediaOne Express currently operates in Los Angeles, Detroit, Chicago, Atlanta, New England (which includes Boston and New Hampshire), Hialeah, Jacksonville and Pompano Beach, Fla., and in the Twin Cities. Cullen estimates that MediaOne Express has between 300,000 and 325,000 installed customers today. Within the Road Runner venture, MediaOne and Time Warner are serving about 110,000. For theindustry in general, he thinks more than 500,000 and maybe 600,000 cable modem users could be on line by the end of the year.

Are there significant quality differences between HFC and ADSL? Cullen believes there are. While there are "significant differences" in the topology of the network, the question really is, how much is perceptible by the customer in the long run? "There are thousands of Web sites that debate this. The telcos will say you can get 5 Mb/s per customer on a cable modem, but if you sell too many of them in the same neighborhood, then the effective throughput per customer will drop over time," Cullen says.

"Ultimately, all networks are shared at some point. So if we're sharing it at the node and they're sharing it at the central office, we're all sharing," he says.

"What's important is that we have hundreds of thousands of cable modems out there working today, which ADSL doesn't, and we know that we do not have customer issues around the effective throughput."

If in fact HFC data customers down the line discover their connections are getting slower because of the number of users on-line, Cullen says MediaOne can split the node to double capacity. However, if things get tight with ADSL, Cullen says, "there is some lab research that indicates that the more users they have in a specific neighborhood, the greater the crosstalk between the circuits within the sheath. They may have a problem getting to great levels of penetration because too many of them within one area can't co-exist."

The standards battle The cable modem industry currently is undergoing a standardization process that could be a watershed development for HFC networks (Figure 3). All the major cable operators and the members of Cable Labs had agreed to and published a standard late last year that specified how modems should be made interoperable, Cullen says. The prototypes are in the last stages of testing at the labs in Colorado, and Cullen says "very significant" consumer electronics companies want to begin production of the new odems, including LAN City, Motorola, General Instrument, Samsung, Toshiba, Sony and 3Com.

TE Consulting's Tunmann explains the new standard in more technical terms. "The newly adopted cable modem standard is for an IP-based cable modem to be used for fast Internet access," he says. "A group of cable TV companies, in conjunction with Cable Labs, determined the standard as [data over cable standard] compliant." The ATM Forum, he adds, is completing the IEEE 802.14 standard that defines the use of asynchronous transfer mode over HFC cables while Cable Labs works on a new standard called PacketCable that will become the basis for telephony transmissions over HFC networks.

"So where we are right now is that cable companies buy the modems, and they rent them to the customers along with the $39.99 per month service," Cullen says. "There will be a migration to have these modems certified by the end of this year and deployed early next year. That will open the door for retail distribution, and that leads to greater consumer awareness that high-speed Internet access over cable is available. We want to get to the point where the customer can buy it, take it home, plug it in and it will provision itself." In today's world, however, a technician still has to install the modem.

If modem installation becomes easier, will customers be more likely to use an HFC-based data system or will they stick with their local telcos for service? Cullen believes that many on-line users already are frustrated by slow speeds, and the promise of rapid access may be too good to resist. Future customers also will be swayed by the support for HFC that is being forwarded by the software and PC industries.

"The on-line industry is growing significantly. We had 5 million households in 1995, we have 29 million households today, and most people think it will be 50 million households by 2002," Cullen says. "The more households on-line, the more will be frustrated with dial-up speeds. The dial-up experience is getting more media rich-look at all the video you're seeing on the Web now-and people want a higher speed connection. That's good for the industry. We also have the support of the hardware and software communities that recognize the consumer need for higher bandwidth solutions and their engagement in accelerating it."

Cullen also believes that in the not-to-distant future, PCs will come with a cable modem already installed, so that all that a customer needs to do is plug the cable into the back of the machine. So who will win the race for residential data users in the next five to 10 years? The cable guys, of course, say they will, as do the telcos.

However, both believe there is enough opportunity for everyone.

The high-speed data industry could go three ways, according to Tunmann.

"The new DSL offerings try to make the best out of the existing copper wiring in the local loop and also use fiber trunks to extend their reach. It appears that HFC will be used by the cable industry, fiber/copper by the telephone companies and local multipoint distribution services by new wireless competitive local exchange carriers just licensed by the FCC," he says.

Every new service will favor denser areas of the local loop and all customers will choose among different local service providers within the next 10 years, he adds.

"Expect at least one telemarketing call per week to switch your local telephone service, your Internet access and your VOD to a different service provider," he says.

BellSouth's Goldman says the telecom industry has been aware for 10 to 15 years of the limitless capabilities of fiber, but the electronics have just recently gotten cheap enough to really start deploying fiber to the home. He even predicts the rise of the passive optical network, in which all the power will come from the user end rather than from the network, and with a PC powering the link to the curb.

Insight's Rosenberg takes a more cynical stance because he has seen broken promises on both sides before. He also thinks that the public takes time to adapt to change.

"You can't take tens of millions of subscribers and turn them around in a couple of weeks. It takes a long time, and the investment is billions of dollars in order to make this stuff work," he says. "No new carrier that I know of is building a new network from the ground up using HFC. They're using all glass. Everyone agrees that the backbone networks of both HFC and ADSL are fiber. Wireless is the other option, but that is likely to be constrained by geography due to line of site."

And if it takes money to make money, what does Wall Street think? Rosenberg believes it will be hard to increase stock valuations now based on the promise of a new revenue stream. "The investor community is extremely skittish about any kind of a long-term investment right now because of things crashing around their ears," he adds.

But MediaOne's Cullen disputes this.

"The top six cable companies serve the bulk of the market, and Wall Street is optimistic that we can upgrade the network off one common platform to offer a multitude of services," Cullen says. We've doubled the size of our cable modem business in the last eight months, and we're confident that we'll do it again in the next six months."