DSL vs. Cable Modems: The Future of High-Speed Internet Access
a market research report
Cable modems lead the US market for residential high-speed Internet access with nearly twice as many subscribers as competing DSL service. But DSL growth began exploding in the fourth quarter of 1999, as company after company exceeded their targets in CO deployment, if not in customer base. The growth and expansion in both segments plus the increasing pace of market coverage by all the national providers illustrates the tremendous pent-up demand for high-speed access from consumers and small businesses.
Cable operators have shifted their marketing efforts to selling new services to their existing customer base, rather than selling the same service--cable TV--to new consumers. Cable operators are now selling multimedia services, digital video, video-on-demand, telephony, and high-speed data services. With almost 70 percent of US households having cable TV, the MSOs could easily convert these customers to cable modem subscribers.
Yet both access methods--DSL and cable modems--have their inherent disadvantages. Security issues and shared bandwidth bottlenecks may discourage potential cable modem customers. Poor conditioning of some local loops and distance problems plague DSL providers. But the demand for broadband is so strong that customers may simply choose whomever offers them service first.
DSL vs. Cable Modems features five-year forecasts of DSL and cable modem penetration among residential and small/medium business customers. Insight projects ILEC and CLEC DSL service income, as well as cable TV, cable telephony, and cable modem service revenue through 2005. The 269-page study, with nearly 40 pages devoted to network deployments and market forecasts, also explores competition from T-1, fiber, and alternate wireless access methods. DSL vs. Cable Modems presents everything you ever wanted to know about the technologies, vendors, service providers, and customers of high-speed Internet access.
The race for delivering broadband Internet access is now a highly visible one, and with much at stake. With the growth of the Internetís functionality, and the booming economy, no one really doubts that there will be enormous demand for a high-speed, always-on connection option. There are now many services on the Internet requiring high-speed access, and purchasing power is high due to strong real economic growth and low inflation.
The major questions now are:
Do any of the primary access methods--cable, digital subscriber line (DSL), or fixed wireless--have inherent performance advantages? How can their shortcomings be addressed?
Which of the of the market penetration strategies of the service providers will be successful?
What will be the rate of growth of customer demand? How can the service providers ensure that customers remain satisfied?
The battle line is drawn between the telecommunications companies and the cable MSOs. The MSOs have an early lead, and they are maintaining this lead by upgrading networks and addressing security concerns. The emerging dominance of cable modems has brought a new urgency to the telecommunications industry, whose progression towards DSL has been slow until just recently. Now, companies are stretching their creative limits to address problems that were once thought insoluble, and the industry is changing very rapidly.
It has been estimated that the telephone companies in the US have $170 billion worth of cables sunk into the ground or tied to telephone poles. While much of this older infrastructure cannot handle the constant need to increase capacity for the Internet users, this is not the case for the local cable pairs to the home or business. Those remain an attractive access route, because they can handle much higher speeds than the 56 Kbit/s currently provided by dial-up modems (actually limited to 53 Kbit/s downstream and 32 Kbit/s upstream by FCC fiat).
xDSL is a telephone industry response to the limitations of dial-up modems and customersí demand for more bandwidth. xDSL refers to the physical copper line between the subscriber and service provider, usually using a DSL modem at the customer premises and a DSL access multiplexer (DSLAM) at the central office or remote site. xDSL is a generic term for all types of DSL: Symmetric DSL (SDSL), ISDN DSL (IDSL), High bit rate DSL (HDSL), HDSL2, Asymmetric DSL (ADSL), G.lite, and very high bit rate DSL (VDSL).
DSL providers are racing to cover the entire nation with DSL and are quickly building out their services across the entire US. Many DSL providers seeking to rapidly sign up customers have been waiving equipment charges, installation charges, or even providing free months of DSL services to new customers in return for long-term commitments. These providers will shortly be offering a package of voice and Internet access services, mostly targeting small- to medium-sized businesses.
In the past year, cable operators have shifted their marketing efforts to selling new services to their existing customer base, rather than selling the same service (i.e., cable TV) to new consumers. Cable operators are now selling multimedia services, digital video, video-on-demand, telephony, and high-speed data services.
At first glance, the cable TV companies appear to have a major advantage over all the LECs, having installed much higher bandwidth coaxial cable connections to a large majority of houses. However, the cable TV companies did not originally create a network structure that can easily take advantage of the higher bandwidth. They have needed to make major upgrades to their networks to start building on the bandwidth advantage. Most are converting their distribution networks to even wider bandwidth fiber. In the process, they are adding a return path, both along the fiber route and further out along the coax distribution connections.
The release of standardized cable modems and set-top boxes is what is really threatening to the DSL suppliersí growth in the residential market. With almost 70 percent of the US population having cable (and almost an equivalent number having a set-top box), these people could easily be converted into cable modem subscribers. In addition, self-installable cable modems should benefit the cable operators by significantly reducing or eliminating installation time.
DSL vs. Cable Modems
There were about 589,000 DSL lines installed as of the end of 1999. Currently, data CLECs have made over 3,100 central office DSLAM installations throughout the US. (Some of these installations are in the same central office.) ILECs are not far behind, installing DSLAMs in almost 2,130 of their central offices. Despite DSLís great progression over the last year, INSIGHT predicts that cableís early lead and continuing network buildouts will give them a slight edge over DSL in terms of connections by 2005.
On the other hand, DSL providers will gain more revenue during the period from broadband Internet access services than cable modem providers, primarily due to the fact that DSL providers can currently charge a premium for their business services.
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Broadband Connections to Homes and Small/Medium Businesses
Number of PCs, Percentage Online
Cable Modem Connections
Other Broadband Connections (T-1, ISDN, Fiber, Wireless,etc.)
ILEC vs. CLEC Connections
Cable TV Service Revenue
Cable Telephony Revenue
Cable Internet Access Service Revenue
Cable Modem Subscribers
Price per DSL port
ILEC vs. CLEC DSLAM Equipment Revenue
ILEC vs. CLEC Service Revenue
Residential vs. Business, ILEC vs. CLEC Service Revenue
Servable Lines and DSL Penetration
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Table of Contents
1.4 DSL vs. Cable Modems
xDSL AND CABLE MODEM TECHNOLOGY
2.1.1 The Construction of the Networks
2.1.2 Upgrades to the Networks
2.1.3 Present Status
2.1.4 The Players
2.2 xDSL Technology Overview
2.2.1 Local Network Configuration
188.8.131.52 Central Office
184.108.40.206 Customer Premises Equipment
2.2.2 Versions of xDSL
2.3 Major DSL Technology Issues
2.3.1 G.lite vs. ADSL
2.3.2 Dial-Up DSL and Rate Adaptive Service
2.3.3 Technical Deployment Issues
220.127.116.11 Load Coils
18.104.22.168 Bridge Taps
22.214.171.124 Digital Loop Carriers
126.96.36.199 CLECs Deploying DSL from the DLC
2.3.5 Standards Setting Organizations
2.4 Applications: How They Work
2.4.1 Voice over DSL: The Killer Application?
2.4.2 VPN Services
2.4.3 High Definition Television
2.4.4 Home Networking
2.4.5 Software Download
2.5 Cable TV Alternatives
2.5.1 Development of the Cable TV Network
2.5.2 Traditional Coax Network
188.8.131.52 HFC Components
184.108.40.206 HFC Topology
220.127.116.11 HFC Signal Distribution
18.104.22.168 HFC Example Architecture
22.214.171.124 HFC Market Drivers
126.96.36.199 The Advantages of HFC
2.5.4 Future Upgrades
2.6 DSL vs. Cable Modems
2.6.1 Digital Subscriber Line
188.8.131.52 From the User to the Internet
184.108.40.206 From the Internet to the User
2.6.2 Cable Modems
220.127.116.11 From the User to the Internet
18.104.22.168 From the Internet to the User
THE REGULATORY ENVIRONMENT
3.2 Telecommunications Act of 1996
3.2.1 Distinctions Amongst Carriers
22.214.171.124 Negotiation of Interconnection
3.3 Access to Unbundled Network Elements
3.3.1 Original Requirements
3.3.2 Recent UNE Changes
126.96.36.199 US Supreme Court Ruling
188.8.131.52 March 1999 Order
184.108.40.206 Revised Decision on UNEs
220.127.116.11 Line Sharing
3.3.3 Methods for Interconnection and Access to UNEs
3.3.4 Resale Rates
3.4 ILEC Data Network Deregulation
3.4.1 Section 706 Petitions
3.4.2 Section 706 & Separate Subsidiaries
3.4.3 Initial FCC Section 706 Decision
3.4.4 March 1999 Advanced Services Order
3.5 Interference Concerns
3.5.1 Spectrum Compatibility
3.5.2 Spectrum Management
3.6 New Broadband Reporting Requirements
3.7 FCC Authority on DSL
3.8 Cable Open Access Debate
3.8.2 AT&T and the Portland Ruling
3.8.3 FCCís Cable Jurisdiction
MARKET DRIVERS: CURRENT DEMAND FOR BROADBAND ACCESS TECHNOLOGIES
4.2 PC Penetration and Marketing Tactics
4.2.1 Free Internet Access
4.2.2 Free Broadband Internet Access
4.2.3 PCs on Credit
4.2.4 Free PCs
4.2.6 Non-Conventional Platforms
4.3 Current Internet Market
4.3.2 Internet Usage
4.3.3 Internet Host Growth
4.4 Internet Demographics
4.5 ITís Influence on the US Economy
4.5.1 Growth Rates
4.5.2 Proportion of GDP Attributable to the Internet
4.6 Demand for Broadband Access Services
4.6.2 Small Business/SOHO Drivers
4.6.3 Consumer Drivers
4.7 Application Drivers
4.7.2 Online Trading
4.7.3 Financial Services
18.104.22.168 Online Banking
22.214.171.124 Online Financial Forums
4.7.4 Consumer Travel
4.7.5 Online Retail Shopping
4.7.8 Streaming Audio and Video
4.7.12 Gaming Over the Internet
126.96.36.199 Video Games
188.8.131.52 Horse Wagering
ALTERNATIVE WIRELESS BROADBAND ACCESS METHODS
5.2.1 MCI WorldCom/Sprint
5.2.2 Results of AT&Tís Two-Way Trial
5.2.3 Technology Improvements
5.3 LMDS and Fixed Microwave Services
184.108.40.206 Nextlink Communications, Inc.
5.3.2 Fixed Microwave Services
220.127.116.11 WinStar Communications, Inc.
18.104.22.168 Teligent, Inc.
22.214.171.124 Advanced Radio Telecom Corp.
126.96.36.199 AT&T Corp.
5.4 Unlicensed Bands
5.5 Satellite Communications Services
6.1 ADC Telecommunications, Inc.
6.3 Aware, Inc.
6.4 Broadcom Corp.
6.5 Copper Mountain Networks, Inc.
6.6 Efficient Networks, Inc. (FlowPoint)
6.7 General Instrument Corp. (Motorola)
6.8 Lucent Technologies, Inc.
6.9 Netopia, Inc.
6.10 Nokia Corp.
6.11 Orckit Communications (Fujitsu)
6.12 Paradyne Corp.
6.13 Redback Networks, Inc.
6.14 Scientific-Atlanta, Inc.
6.15 Terayon Communications Systems
6.16 Tut Systems, Inc.
MAJOR SERVICE PROVIDERS
7.1 AOL Time Warner
7.2 Bell Atlantic Corp.
7.3 Concentric Network Corporation (NEXTLINK)
7.4 Covad Communications Co.
7.5 Excite@Home Corp.
7.6 High Speed Access Corp.
7.7 NorthPoint Communications, Inc.
7.8 Rhythms NetConnections, Inc.
7.9 Road Runner (Time Warner & MediaOne Group)
7.10 SBC Communications, Inc.
7.11 U S West, Inc.
NETWORK DEPLOYMENTS AND MARKET FORECASTS
8.1.1 Overall Plant Readiness
8.1.4 Methods to Spur Deployment
188.8.131.52 Self Installation
8.2.1 Status of the Networks
8.2.2 Upgrade Plans of Operators
184.108.40.206 Upgrade Status
220.127.116.11 Fiber Node and Back Office Issues
8.2.3 New Generation of Cable Equipment
18.104.22.168 Standardized Cable Modems
22.214.171.124 Set-Top Boxes
8.3 Market Forecasts
8.3.1 Growth of the Access Market
8.3.3 US Broadband Connection Penetration
8.3.4 DSL Lines Provided by ILECs vs. CLECs
8.3.5 DSL Equipment Market
8.3.6 DSL Services Market
Table of Figures
I-1 Total US DSL vs. Cable Modem Connections, 1999-2005 (Millions)
I-2 Total US DSL vs. Cable Modem Services Revenue, 1999-2005 ($Billions)
II-1 Local Central Office Serving Configuration for DSL Service
II-2 Local Central Office Configuration, Customers Served
II-3 Potential Customers Served From a US Central Office, Residences vs. Businesses, 1999
II-4 Crosstalk in a Cable Binder
II-5 Old Style Copper Pair With Load Coils and Bridge Taps
II-6 Local Central Office and DLC Serving Configuration
II-7 Voice over DSL Generic Architecture
II-8 Coax Network Architecture
II-9 Traditional Tree-and-Branch Coax Architecture
II-10 Coax Distribution to Customer Premises
II-11 Typical Cable Frequency Spectrum Allocation
II-12 HFC Architecture Providing Video and Voice Services
IV-1 Years to Reach 50 Million Users (Radio, TV, PCs, Internet)
IV-2 Growth of Internet Hosts, 1995-1999 (Millions)
IV-3 Small Businessesí IT Spending by Category, 1998 vs. 2002
IV-4 Ratio of Consumers Using Online Brokerage Services, 1997-2003
IV-5 Online Broker Trading Assets, 1998 vs. 2003 ($Billions)
IV-6 Average Cost Per Banking Transaction, Online vs. At a Branch, 1999
V-1 Two-way MMDS Network Layout
VII-1 US West DSL Rollout Numbers, March 1999 to January 2000
VIII-1 CLEC vs. ILEC DSL-Ready Central Offices, 1999
VIII-2 CLEC DSL Customers by Company, 1999
VIII-3 Upgrade Status of the Networks of the Largest Cable Operators, 1999 vs. 2004 (MHz)
VIII-4 Major Cable ISP Subscribers, 1999 (Thousands)
VIII-5 Total Cable Modem Subscribers by MSO, 1999-2003
VIII-6 Services Revenue Forecast for Cable MSOs, 1999-2004 ($Millions)
VIII-7 Households with Personal Computers, 1998-2003 (Thousands)
VIII-8 Comparison of Growth of Voice and Data Traffic, 1998-2003 (Gbit/s)
VIII-9 Comparison of Voice and Data Revenue, 1998
VIII-10 Growth of T-1 Lines, 1990-2000 (Thousands)
VIII-11 Total US Computers, Homes vs. Businesses, 1999-2005 (Thousands)
VIII-12 Percentage of Computers Online, Homes vs. Businesses, 1999-2005
VIII-13 Percentage of Computers with Broadband, Homes vs. Businesses, 1999-2005
VIII-14 Computers with Broadband Connections, Homes vs. Businesses,
VIII-15 Broadband Connections by Type to Homes, 1999-2005 (Thousands)
VIII-16 Broadband Connections by Type to Small/Medium Businesses,
VIII-17 Total Telephone Lines, Residential vs. Business, 1999-2005 (Thousands)
VIII-18 Total Residential Lines, ILEC vs. CLEC, 1999-2005 (Thousands)
VIII-19 Total Small/Medium Business Lines, ILEC vs. CLEC, 1999-2005 (Thousands)
VIII-20 Total US Residential DSL Lines, ILEC vs. CLEC, 1999-2005 (Thousands)
VIII-21 Total US Small/Medium Business DSL Lines, ILEC vs. CLEC,
VIII-22 Total US DSL Lines, Symmetric vs. Asymmetric, 1999-2005 (Thousands)
VIII-23 Price per DSL Port, 1999-2005
VIII-24 DSLAM Equipment Market, 1999-2005 ($Millions)
VIII-25 DSL Average Service Prices, Residential and Business,
ILEC and CLEC, 1999-2005
VIII-26 Total DSL Service Revenue, 1999-2005 ($Millions)
Table of Tables
I-1 Overview of xDSL Types
I-2 Advantages and Disadvantages of Cable Modem and xDSL Providers
II-1 The Flavors and Features of xDSL
II-2 Ideal Markets and Applications for Each xDSL Type
II-3 DMT vs. CAP Line Coding
II-4 Efficiencies of Various Access Methods (20 Mbyte File Download)
II-5 Cable Modems vs. xDSL
III-1 Interconnection Portions of the Telecommunications Act of 1996
III-2 UNE List
III-3 Changes in UNE Rules
III-4 Section 706 Proceedings
IV-1 ISP Subscribers, 1999
IV-2 Roper Poll Results
IV-3 Internet Penetration Among Adults in Major Cities, 1999
IV-4 IT Contribution to Real Growth, 1993-1998
IV-5 IT Industriesí Effect on Inflation, 1993-1997
IV-6 Projected Size of the Worldwide Internet Economy, 1998 vs. 2003 ($Millions)
IV-7 Home-Based Businesses, by Gender and Age Group, 1999
IV-8 Small Businesses with Internet Access, 1997 and 2001
IV-9 Primary Broadband Applications, Consumer vs. Business
IV-10 Most Popular Online Consumer Travel Sites, 1999
VI-1 Overview of Subscriber Management Systems for DSL, 2000
VII-1 Concentricís Markets in the US, 1999
VII-2 @Home Homes Passed, Subscribers, and Revenue, 1999
VII-3 SBCís Project Pronto ADSL Prices
VIII-1 DSL Deployment in the United States by Provider, 1999
VIII-2 Total Services Possible over 750 MHz Plant (600 Homes Passed)
VIII-3 Percentage of Two-way Capable Homes, Largest Cable Operators, 1999-2004
VIII-4 Telephony-Ready Homes by Cable Operator, 1999 and 2000 (Thousands)
VIII-5 Cable Modem Customers and Penetration of the Major MSOs, 1999
VIII-6 Cable Modem Customers and Penetration of the Major MSOs, 2000
VIII-7 Total Cable Modem Subscribers, 1999-2003 (Thousands)
VIII-8 Services Revenue Forecast for Cable MSO by Service Type, 1999-2004 ($Millions)
VIII-9 Broadband Connections Market, Homes vs. Small Businesses, 1999-2005 (Thousands)
VIII-10 Servable Lines and DSL Penetration, 1999-2005 (Thousands)
VIII-11 DSLAM Equipment Market, ILEC vs. CLEC, 1999-2005 ($Millions)
VIII-12 DSL Services Revenue, Residential vs. Business, ILEC vs. CLEC, 1999-2005 ($Millions)
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