The Crisis in Broadband Internet Access
The online world is smack in the midst of a virtual bloodbath, with company after company going under and hundreds of thousands of dot-com workers losing their jobs. Now, for those desiring simply to access the Internet at acceptable speeds, the upheaval has begun to hit home, hard.
The recent announcement that Excite@Home at <[email protected]>, the largest provider of high-speed cable Internet access in the country, was in danger of going out of business was the latest shock. On top of this, Covad at <www.covad.com>, the largest independent wholesale provider of high-speed DSL (digital subscriber line) Internet access, just filed for Chapter 11 bankruptcy protection.
Earlier this year, the second largest independent wholesale DSL provider, NorthPoint, folded completely, leaving 100,000 customers scrambling for alternate access.
Consumers and businesses who have grown accustomed to accessing the Internet at high-speeds are starting to panic, judging from informal conversations and discussions in online forums. Many would be affected. Excite@Home has 3.7 million users through its 21 cable company partners, including AT&T Broadband, Comcast and Cox, while Covad has 333,000 users through its 200 Internet service provider partners, including EarthLink and UUNet.
There is no need for panic. High-speed access, also called broadband access, is here to stay, as is the Internet in general as an invaluable business and personal tool.
With broadband, the problem isn’t its usefulness. Sure, cable modem and DSL providers have received complaints about limited availability, installation snafus, and poor customer service and technical support. But broadband provides 10 times the speed for two to three times the cost, well worth it for the vast majority of users who have experienced it.
The problem, instead, lies primarily with larger economic issues: the collapse of the Web advertising model, the “irrational exuberance” of capital markets for anything related to the Internet and the slowing of the economy. In addition, the challenge of rolling out new technology to millions of people, understandably, has been daunting.
Excite@Home got into its predicament, which involves billions of dollars in recent losses, after the merger in 1999 of cable access provider At Home with Web portal Excite. This happened during the Internet’s go-go times, when Internet companies were attracting huge sums of investment capital and seeing their stock valuations skyrocket by simply making deals and being visible.
Many people expected the system to sustain itself through advertising as Web surfers clicked through banner ads to other sites, where they would presumably make purchases or otherwise generate revenue. But when it became clear that surfers weren’t paying much attention to Web ads, the bottom began to cave in.
At Home expected its subscribers in large numbers to visit the Excite portal by making it the default start page. But surfers, particularly broadband surfers, are savvy and independent-minded, wanting to experience the Net on their own terms. Many switched to start pages of their own choosing or simply went without one.
Excite@Home also spent lavishly on such things as a spiffy headquarters building in pricey Redwood City, Calif., and loans totaling close to $2 million to its top executives, as was revealed in its June 28, 2001, proxy. Many other Internet businesses at the time were spending money in a similar fashion, but in retrospect, more resources could have gone into improving the service.
Though they won’t yet be specific, the official line from the cable companies is that no matter what happens to Excite@Home, cable Internet access will continue. The same is true with DSL access.
It’s a credible line.
Even before this current brouhaha, cable companies were planning to offer subscribers choices beyond Excite@Home as their provider of e-mail, Web and other Internet services. The cable companies themselves are responsible for the physical cable infrastructure as well as billing and other administrative services.
The cable companies have invested billions in upgrading their physical infrastructure to support high-speed data in addition to the cable TV programming they have traditionally provided. It’s inconceivable that they would pull the plug on these investments when all indications are that broadband Internet access will continue its speedy growth in popularity.
If Excite@Home does go under, which is far from a certainty, what will likely happen is that local cable companies will partner with other service providers or, as some small cable companies do now, begin providing Net services themselves.
If Covad goes under, which is even less likely at this point, the phone companies will have reduced competition.
With both cable and DSL, regardless of who survives and who
doesn’t, the big downside is that prices will likely be increasing.
— Reid Goldsborough is a syndicated columnist and author of the book Straight Talk About the Information Superhighway. He can be reached at [email protected] or
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