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While crashing costs in the long distance market can readily be attributed to the impact the new wavelength division multiplexing technology is having on operational efficiencies and network capacity constraints, in the local market the agent of change is far more fundamental. When we set out to examine the investment the local phone companies are making in broadband access, our working assumption was that we are on the cusp of a shift in usage patterns from voice to data. After more than 100 years of experience with voice, our telecommunications networks are about to deliver access to a sensory environment infinitely more rich and satisfying.
This report analyzes the key trends in the rapidly emerging demand for consumer broadband services, which we define as network access speeds over 200 Kbit/s. These services are provided by:
+ local and multichannel multipoint distribution systems (LMDS and MMDS),
+ integrated services digital network (ISDN)
+ digital subscriber line (DSL), and
+ cable modem, and
- satellite systems.
As the twin forces of deregulation and competition push the domestic public switched telephone network (PSTN) forward into a new era of broadband service, these same forces will make the future for the traditional phone companies far from certain. For example, in wireline local access, the telcos experience with ISDN has long been recognized as an unmitigated failure as high prices, technical incompatibility issues, and poor marketing kept consumer penetration rates extremely low after more than 20 years of effort. Today incumbent telcos are slowly rolling out another wideband access scheme targeted to consumers. Though we believe it unlikely they will make the same mistakes in pricing, selling, and promoting the new higher-speed DSL service, the slightest misstep will give the cable TV (CATV) industry the opportunity to gain a powerful advantage in the residential broadband market.
With ISDN, the telcos never really understood what they had and how they could take advantage of it, but the growth of the Internet is going to force them to change. Telcos now understand that with the advent of tough competition from the large cable operators, they will have only one chance to gain these additional subscribers. In the coming months, more and more telcos will begin converting their various types of DSL (xDSL) trials into commercial operations. The Universal ADSL Working Group (UAWG) said they expected to begin mass marketing their modems in time for the 1998 holiday season; however, they seem to be missing the window. Although there will always be next year for DSL, a significant portion of the potential high-speed access population will be closed to DSL if the product is delayed.
Cable TV multiple system operator (MSO) Cox Communications has found that once consumers buy a cable modem from Cox or an electronic store they are far less likely to churn and move to another wireline Internet provider, such as a phone company. Consumers who purchase access this year and pay $250-$300 for a cable modem are not likely to pay an additional $300 for a DSL modem any time soon.
The competitive turbulence apparent in wireline local access is just one aspect of an increasingly uncertain competitive picture. The main question is whether the local phone companies are ready to change their ways and become much more nimble in developing and marketing products. Phone companies are going to have to learn some lessons from the computer and consumer electronic companies. For the telcos to succeed, new products are going to have to be rolled out quickly while long-term projects have to be conceived, designed, implemented, and deliver a payoff in less than five years. The future of the phone companies depends on shorter term projects with life cycles akin to the extremely short life cycles of PCs.
The crux of this report lies in the increasing importance of broadband services as a fraction of the revenue from all the communications services to the household. While consumer narrowband and cable television growth rates are forecast at four to nine percent, high-speed data access is forecast to grow at an almost 100 percent rate, albeit from a very low initial volume.
It is INSIGHTs belief that as we move beyond the forecast period (2005 and beyond), high-speed access growth rates will grow at an even more rapid pace than today. We base this expectation on a number of findings derived from our proprietary survey of 1,018 respondents. Among our findings were:
- Males are consistently more likely to own or expect to own this set of existing and emerging broadband technologies than females.
- The responses we gathered suggest that high-speed access providers, whether a cable TV company or telephone company, are going to capture at least 14 percent of households, or about 14 million unit sales by the end of 1999.
- At current prices of $250-$350 per unit, we are estimating an achievable two year sales total of $4.2 billion in high-speed modem equipment sales alone.
- While race and ethnicity had an impact on interest and ownership of existing technologies, our survey did not find any discernible interest in future technology based upon race or ethnic background. No racial or ethnic differences were apparent for interest in high-speed phone lines, Internet usage, or satellite TV.
- Yet as we demonstrate in INSIGHTs study entitled Telecommunications Marketing to Ethnic Groups, changing US demographic patterns are going to make marketing in the new century increasingly a question of delivering messages in a multi-ethnic cross-cultural environment.
- Not surprisingly, we see interest increase as income rises for such emerging technologies as high-speed phone lines, satellite TV, and Internet usage.
- The $35K+ households is something of a dividing line; households with this income level show a consistently significant higher level of interest over households with lower incomes.
- Interestingly, income level has no impact on interest in interactive TV. Perhaps it is because the benefit and interest in interactivity is satisfied in some households by the Internet while the desire for entertainment is satisfied by regular or cable TV. If the interactive capability were to be improved to allow for simultaneous entertainment and information usage, then perhaps consumer preference would change dramatically.
Scope of Report
This report examines in depth the driving forces and growth of the demand for broadband access among US consumers. Chapter II provides an introduction as well as an overview of some of the more critical drivers influencing the trend toward broadband access and of the three types of technologies featured in this report: xDSL, cable modems, and wireless and satellite.
Chapter III discusses the types of applications driving the demand for broadband access and estimates the size of different segments of the consumer broadband market. The Internet and the World Wide Web (WWW) are the most important drivers for this market, and therefore some of the applications discussed in this report are the innovative and new Internet-based applications that are spurring consumers to purchase broadband access. Some typical applications are:
- home shopping or electronic commerce,
- Internet telephony,
- video telephony,
- gaming (including gambling over the Internet), and
- adult entertainment (one of the most sought after commodities).
Chapter IV discusses the three distribution media. Wireline, wireless, and satellite technologies use different methods for delivering broadband access to the consumer. Wireline technology includes all the types of technology that rely on physical wires to deliver broadband access; for example, telephone or cable wires. Wireless technology includes the differing types of wireless approaches, such as MMDS and LMDS, to deliver data and video. Discussion of satellite distribution is restricted to direct broadcasting satellites (DBS) and does not include the older C-band satellites. The description of each technology also includes a full explanation of the costs and benefits of using them to deliver broadband access. The status of market trials or commercial operations is reported on.
Chapter V analyzes the service providers for broadband access and profiles the key industry players and vendors. The report summarizes the strategies and growth prospects for all the key players and discusses how the companies plan to implement their strategies. The vendor profiles analyze the companys standing and describes their consumer broadband products.
Chapter VI discusses the results of a proprietary survey conducted in March, 1998 of over 1,000 randomly selected consumers. Their responses are analyzed by demographic criteria to show consumer interest in various types of broadband applications and requirements.
Chapter VII forecasts the growth of broadband access in three distribution media: xDSL, cable modems, and wireless and satellite. The overall growth of broadband access is provided from 1998 to 2003. Forecasts include growth in the number of Internet access subscribers, growth by type of connection, market share of competing technologies, and consumer expenditures for online access. The chapter also includes a discussion of the future of the broadband market and what telcos must do to compete successfully in this radically changing environment.
Table of Contents:
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1.1 The Issues
1.3 Scope of Report
DEMAND FOR BROADBAND SERVICES
2.1 Why Consumers Want Broadband
2.1.1 Potential Applications Using Broadband
2.1.2 Residential Computer Usage
2.1.3 Internet and Multimedia Applications Create Need for Broadband Services
2.1.3 Cable Broadband Service
2.2 Projecting Demand for High-Speed Access
2.2.1 Size of Consumer Broadband Market
184.108.40.206 How Many People Are Online, Anyway
2.2.2 Types of Households Purchasing Broadband Services
2.2.3 Understanding the Internets Rapid Growth
2.3 Broadband Technologies
2.4 Broadband Technologies
2.4.1 Broadband Wireline Technologies
220.127.116.11 DSL Technologies
18.104.22.168 Cable Modems & HFC Cable
2.4.2 Broadband Wireless Technologies
2.4.3 Consumer Satellite Services
APPLICATIONS FOR CONSUMER BROADBAND
3.1 Consumer Demand for Applications and Content
3.1.1 IP Telephony
22.214.171.124 Video Conferencing Over the Internet
126.96.36.199 Audio and Video over the Internet
3.1.2 Interactive Television
3.2 Consumers Online
3.2.1 Work-at-Home Requirements
3.2.2 Children Online
3.3 Leading Consumer Sectors for the Broadband Market
3.3.1 Home Shopping
188.8.131.52 Buying Clothing from the Web
184.108.40.206 Buying Music from the Web
220.127.116.11 Buying Publications Electronically
18.104.22.168 Buying Greeting Cards from the Web
3.3.2 Online Financial Services
3.3.3 Consumer Travel
3.3.4 City Guides
3.3.5 Online Classified Advertisements
3.3.6 Adult Entertainment
3.3.8 Interactive Gaming
22.214.171.124 Internet Casinos
126.96.36.199 Horse Wagering
188.8.131.52 Sports Wagering
3.4 Leading Content Providers for Consumers
3.4.1 America Online, Inc.
3.4.2 Yahoo! Inc.
3.4.3 Excite, Inc.
TECHNOLOGIES FOR PROVIDING
4.1 Introduction: The Development of Broadband Networks
4.1.1 Cable Alternatives To Copper Wiring
4.1.2 Alternative Wireless Technologies
4.2 High-Speed Wireline Telco Technologies
4.2.1 Digital Subscriber Line - xDSL
184.108.40.206 Constraints on xDSL Technology
220.127.116.11 Central Office/Customer Premises Equipment for xDSL
18.104.22.168 ADSL Lite
22.214.171.124 xDSL Trials by Telcos
126.96.36.199 Consumer ISDN Technology
188.8.131.52 Bumpy Road to ISDN
184.108.40.206 ISDN Prices
4.3 High-Speed Wireline Cable Technologies
4.3.1 Upgrades of the Cable Plant
220.127.116.11 Solutions to Future Congestion
18.104.22.168 Cableco Upgrades
22.214.171.124 Hybrid Fiber Coaxial Cable
126.96.36.199 Spread Spectrum
4.3.2 Set Top Boxes
4.3.3 Cable Modems
188.8.131.52 Adoption of Cable Modems
184.108.40.206 Demand for Cable Modems Exceeds Supply in 1998
4.3.4 Digital Set Top and Cable Modem Standards
220.127.116.11 Open Cable Initiative
18.104.22.168 Other Broadband Cable Standards
4.3.5 Pricing of Broadband Cable Services
4.4 Terrestrial High-Speed Wireless Distribution
4.4.1 Advantages of Broadband Wireless Over Wireline Services
4.4.3 MMDS and Other Wireless Cable Services
22.214.171.124 Digital MMDS
4.5 Direct-to-Home Terrestrial Satellite Distribution Systems
4.5.1 DBS Equipment
126.96.36.199 DBS Transmission
188.8.131.52 DBS Programming
SERVICES, INDUSTRY PLAYERS,
AND VENDOR PROFILES
5.1 Service Providers & Their Offerings
5.1.1 @Home Broadband Service Provider for Consumers
184.108.40.206 @Homes Content for Consumers
220.127.116.11 Merger Talks and Mergers
18.104.22.168 RoadRunners Merger with MediaOne
5.1.3 AOLs Broadband Services
22.214.171.124 AOLs Agreements with Content Providers
5.1.4 RBOCs Internet Access Services
126.96.36.199 Ameritech.net A Leading Example
5.1.5 AT&T WorldNet Internet Service
5.1.6 MCIs Broadband Service for Consumers
5.1.7 GTEs Web-based E-Mail
5.1.8 Satellite Broadband Providers
188.8.131.52 DirecTV and USSB
5.2 Vendor Profiles
5.2.1 Aware, Inc.
5.2.2 Cisco Systems, Inc.
184.108.40.206 Routers and Networking
220.127.116.11 Cisco Pursues Cable Modems & ADSL
18.104.22.168 Partnerships, Mergers, & Agreements
5.2.3 General Instrument Corp.
22.214.171.124 Agreements, Deals, and Partnerships
126.96.36.199 General Instruments Products
5.2.4 Lucent Technologies, Inc.
188.8.131.52 New Internet Products
5.2.5 Microsoft Corp.
5.2.6 Motorola, Inc.
184.108.40.206 Agreements & Alliances
5.2.7 PairGain Technologies, Inc.
5.2.8 Paradyne Corporation
5.2.9 Scientific-Atlanta, Inc.
220.127.116.11 Two-way, Digital Cable Modems
5.2.10 Sony Corporation
5.2.11 Tele-Communications, Inc.
18.104.22.168 Headend in the Sky
22.214.171.124 Agreements with Set Top Box Developers
RESULTS OF MARKETING STUDY
6.1 Description of Study
6.1.1 Segmentation Covers all US Households
6.2 Analysis Based on Basic Characteristics of Consumers
6.2.4 Marital Status
6.2.5 Level of Education
6.2.6 Employment Status
6.2.7 Income Level
6.3 Analysis Based on Characteristics of Household
6.3.1 Household Size
6.3.2 Presence of Children
126.96.36.199 Location in a Metropolitan Area
FORECASTS OF CONSUMER
7.2 Forces Driving Demand Forecasts for Internet Access
7.3 Two Possible Scenarios
7.3.1 Overall Demand
7.3.2 A Possible Growth Scenario: Cable Catches On Quickly
7.3.3 Another Growth Scenario: xDSL Catches On Quickly, Scenario #2
7.4 US Broadband Revenue from Consumer Services
7.5 The Future of Broadband
7.5.1 xDSL Service Rollout
188.8.131.52 Marketing xDSL
184.108.40.206 Need for xDSL Standardization
QUESTIONS ASKED IN MARKET SURVEY
List of Questions
TABLE OF FIGURES
I-1 US Consumer Telecommunications and CATV Services Revenue, 1998-2003 ($Billions)
I-2 US Consumer Telecom Revenue from Various Broadband Technologies, 1998-2003 ($Billions)
II-1 US Revenue from Existing and Potential Consumer Applications that Require Broadband Technology, 1998-2003 ($Billions)
II-2 Portion of US Consumer Video and Music Market that Broadband Applications Will Capture, 1998 and 2003 ($Billions)
II-3 Portion of US Consumer Interactive Digital Media Market that Broadband Applications Will Capture, 1998 and 2003 ($Billions)
II-4 Penetration of US Households by PCs, 1998-2003 (Millions)
II-5 Growth of US Households with PCs and Households Online, 1998-2003 (Millions)
II-6 Time Needed to Download 12 Meg/3.5 Minute Video Clip (Logarithmic Scale)
II-7 Number of Internet Subscribers by Provider, 1998 (Thousands)
II-8 Internet Subscribers by Income and Age, 1998
II-9 Diffusion Rates of Selected Technologies
II-10 Growth of Internet Hosts, 1994-1998 (Thousands)
II-11 Installations of New Lines Worldwide, 1997 and 2000 (Millions)
II-12 Market Share of Penetration of Broadband Technologies in 1998 and 2003
II-13 Percent of US Population Subscribing to Cable Television, 1994-2003
III-1 Online Households That Do Online Shopping, 1998-2003 (Millions)
III-2 Projected Growth of E-retailing By Category, 1996 and 1997 ($Millions)
III-3 Online Clothing Purchases, 1998-2002 ($Millions)
III-4 Comparison of the Number of Online Music Households and Revenue from Online Music, 1997-2002
IV-1 LMDS Network Architecture
IV-2 MMDS Network Architecture
V-1 @Home Network Architecture Map
V-2 ISP Market Share, 1998
V-3 US DBS Market Share, 1998
VI-1 Penetration of Selected Consumer Technologies Related to Broadband, 1998
VI-2 PC Penetration, by Gender, 1998
VI-3 Broadband Technology Expected to Own Soon, by Gender, 1998
VI-4 Penetration of Present and Future Broadband Technologies by Gender, 1998
VI-5 PC Penetration, by Race, 1998
VI-6 Broadband Technology Expected to Own Soon, by Race, 1998
VI-7 Penetration of Present and Future Broadband Technologies by Race, 1998
VI-8 PC Penetration, by Age, 1998
VI-9 Broadband Technology Expected to Own Soon, by Age, 1998
VI-10 Penetration of Present and Future Broadband Technologies by Age, 1998
VI-11 PC Penetration, by Marital Status, 1998
VI-12 Broadband Technology Expected to Own Soon, by Marital Status, 1998
VI-13 Penetration of Present and Future Broadband Technologies by Marital Status, 1998
VI-14 PC Penetration, by Level of Education, 1998
VI-15 Broadband Technology Expected to Own Soon, by Level of Education, 1998
VI-16 Penetration of Present and Future Broadband Technologies by Level of Education, 1998
VI-17 PC Penetration, by Employment Status, 1998
VI-18 Broadband Technology Expected to Own Soon, by Employment Status, 1998
VI-19 Penetration of Present and Future Broadband Technologies by Employment Status, 1998
VI-20 PC Penetration, by Income Level, 1998
VI-21 Broadband Technology Expected to Own Soon, by Income Level, 1998
VI-22 Penetration of Present and Future Broadband Technologies by Income Level, 1998
VI-23 PC Penetration, by Household Size, 1998
VI-24 Broadband Technology Expected to Own Soon, by Household Size, 1998
VI-25 Penetration of Present and Future Broadband Technologies by Household Size, 1998
VI-26 PC Penetration, by Presence of Children, 1998
VI-27 Broadband Technology Expected to Own Soon, by Presence of Children, 1998
VI-28 Penetration of Present and Future Broadband Technologies by Whether Children Reside in Household, 1998
VI-29 PC Penetration, by Geographic Region, 1998
VI-30 Broadband Technology Expected to Own Soon, by Geographic Region, 1998
VI-31 Penetration of Present and Future Broadband Technologies by Geographic Region, 1998
VI-32 PC Penetration, by Location in Metropolitan Area, 1998
VI-33 Broadband Technology Expected to Own Soon, by Location in Metropolitan Area, 1998
VI-34 Penetration of Present and Future Broadband Technologies by Location in Metropolitan or Non-Metropolitan Area, 1998
VII-1 Share of Internet Access Using Various Types of Modems, 1997-2003
VII-2 Market Share of Various Types of Internet Access, 1997 and 2003
VII-3 Share of Internet Access Using Various Types of Modems If Cable Catches On Quickly, 1997-2003
VII-4 Market Share of Various Types of Internet Access If Cable Catches On Quickly, 1997 and 2003
VII-5 Consumer Expenditures for Internet Access If Cable Catches On Quickly, 1997-2003 ($Millions)
VII-6 Consumer Expenditures for Internet Access If Cable Catches On Quickly, by Broadband Technology, 1997-2003 ($Millions)
VII-7 Share of Internet Access Using Various Types of Modems If xDSL Catches On, 1997-2003
VII-8 Market Share of Various Types of Internet Access If xDSL Catches On, 1997 and 2003
VII-9 Consumer Expenditures for Internet Access If xDSL Catches On, 1997-2003 ($Millions)
VII-10 Consumer Expenditures for Internet Access If xDSL Catches On, by Broadband Technology, 1997-2003 ($Millions)
VII-11 US Consumer Telecommunications and CATV Services Revenue, 1998-2003 ($Billions)
VII-12 US Consumer Telecom Revenue from Broadband Technologies, 1998-2003 ($Billions)
TABLE OF TABLES
II-1 US Revenue from Existing and Potential Consumer Applications that Require Broadband Technology, 1998-2003 ($Billions)
II-2 PC and Online Penetration of US Households, 1998-2003 (Millions)
II-3 Time Needed to Download 12 Meg/3.5 Minute Video Clip
III-1 Digital Television Broadcast Rollout Schedule, 1999
III-2 Most Frequently Visited Web Sites, 1998 (Millions)
III-3 Projected Growth of E-retailing By Category, 1996 and 1997 ($Millions)
III-4 Most Popular Retail Sites on the Web, 1998 (Millions)
III-5 Forecast of Online Music Purchases, 1998-2003
III-6 Web Sites of Travel Companies (Millions)
III-7 Web Sports Sites, 1998
V-1 RoadRunners Markets
VI-1 Penetration of Selected Consumer Technologies Related to Broadband, by Gender, 1998
VI-2 Selected Consumer Technology Penetration Relating to Broadband Needs by Race, 1998
VI-3 Selected Consumer Technology Penetration Relating to Broadband Needs by Age Group, 1998
VI-4 Selected Consumer Technology Penetration Relating to Broadband Needs, by Marital Status, 1998
VI-5 Selected Consumer Technology Penetration Relating to Broadband Needs, by Level of Education, 1998
VI-6 Selected Consumer Technology Penetration Relating to Broadband Needs, by Employment Status, 1998
VI-7 Penetration of Selected Consumer Technologies Related to Broadband, by Income Group, 1998
VI-8 Selected Consumer Technology Penetration Relating to Broadband Needs, by Household Size, 1998
VI-9 Selected Consumer Technology Penetration Relating to Broadband Needs, by Presence of Children, 1998
VI-10 Selected Consumer Technology Penetration Relating to Broadband Needs, by Geographic Region, 1998
VI-11 Selected Consumer Technology Penetration Relating to Broadband Needs, by Location in Metropolitan Area, 1998
VII-1 Share of Internet Access Using Various Types of Modems, 1997-2003
VII-2 Share of Internet Access Using Various Types of Modems If Cable Catches On Quickly, 1997-2003
VII-3 Consumer Expenditures for Internet Access If Cable Catches On Quickly, 1997-2003 ($Millions)
VII-4 Share of Internet Access Using Various Types of Modems If xDSL Catches On, 1997-2003
VII-5 Consumer Expenditures for Internet Access Using xDSL If xDSL Catches On, 1997-2003 ($Millions)
VII-6 US Consumer Telecommunications and CATV Services Revenue, 1998-2003 ($Billions)
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