Saturday, July 09, 2005

The future of access.

Notice how all the smart money has already begun to invest. And late to market does not matter...there will be no switching costs. In fact, this may officially signal the end of the traditional landline business, as cellular/wireless and VOIP over power lines become standard operating procedure.

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Powerline Promise --- By William Alpert

971 words
11 July 2005
Barron's
21
English
(c) 2005 Dow Jones & Company, Inc.

Within a few years, everyone will be trying to sell every kind of communication service. Cable, phone, satellite and wireless firms will offer voice, data and television. That's made it hard to predict where market share and pricing will settle out. But prediction got even harder last week, when Google, Goldman Sachs and Hearst joined in a $100 million funding of yet another broadband technology. It's broadband-over-powerline, which runs on existing electric powerlines.

The three big backers are putting their money into Current Communications Group, a Germantown, Md.-based private firm started up by John Malone's Liberty Media (L) and the Berkmans, a family of successful investors in broadcast and cellular.

Everywhere you look these days, it seems there's another broadband technology. I count six: cable, phone, satellite, cellular, powerline and . . . one fine day, WiMax. Sounds great for consumers, but won't all those rivals beat each others' brains out?

It's not as bad as it looks, suggests Current Communications chairman Bill Berkman. Some of those seeming rivals will prove complementary, remedying each others' shortcomings. Here's another clue for you all: Wireless will need backhaul.

Current has offered broadband service since last year to the powerline customers of Cincinnati, Ohio utility Cinergy (CIN). Subscribers get Internet phone service and Web-surfing at speeds comparable to a cable modem or the phone companies' Digital Subscriber Line.

But unlike cable or DSL, the powerline broadband service offers fast downloads and uploads. And the modems plug into any power outlet in the house. The new money should allow Current to expand its broadband-over-powerline service into new territories, in deals with other electrical utilities.

There will be competition. Even in markets with just cable and DSL, there's already discounting by the likes of SBC Communications (SBC) -- a fact noted by the Federal Communications Commission's chairman Kevin J. Martin on Thursday, when the commission reported that high-speed Internet subscriptions rose 34% in the U.S. last year, to about 38 million lines.

Cable television operators like Comcast (CMCSA) are selling phone service. Phone companies like Verizon Communications (VZ) and SBC Communications are laying fiberoptic lines, to offer high-definition television. New satellites launched by DirecTV Group (DTV) over the next couple of years will carry thousands of high-def channels. Third-generation-technology upgrades this year by Verizon Wireless, Sprint (FON) and Cingular Wireless will broadcast television and music.

And that's just the incumbent technologies. Sometime in 2006 or 2007, new networks will blanket cities with broadband service using the wireless technologies of Wi-Fi and WiMax.

So far, the broadband-over-powerline technology used by Current Communications has appeared in scattered test runs at utilities like Houston-based CenterPoint Energy (CNP) (the regulated spinoff of Reliant Energy), Hawaiian Electric Industries (HE) and Boise's Idacorp (IDA). The leading pure plays in broadband-over-powerline are private companies like Current and the Ocala, Fla.-based Intellon, which makes chips used in Current Communication's modems and in the widely-retailed devices that use the HomePlug standard to make your house's wiring into a home computer network.

Because Current is privately held, chairman Bill Berkman won't say how many subscribers it's signed up in Cinergy's territory.

The number may not be large. At its analyst meeting last month, Cincinnati Bell (CBB) told analysts that Current's powerline service has taken "neglible" market share. The FCC tally released last week reported a nationwide increase of only 96,000 subscribers last year, in the category that includes both powerline and fiberoptic broadband, to a Dec. 2004 total of about 700,000. By comparison, cable firms added about 5 million subscribers to surpass 21 million, while phone firms added 4 million DSL subscribers to reach about 14 million.

A few things should step up the competition from Berkman's powerline alternative. First, there's the 100 million bucks from Goldman, Hearst and Google (GOOG). With its investment last week, Google said that broadband-over-powerline would help promote universal access to the Internet. Berkman's captive-equipment supplier, Current Technologies, is preparing to ship gear that incorporates new chips from Intellon that will allow 10 million bits-per-second service -- more than triple the current speed offered by cable and phone rivals.

As for the competitive battle-royal, Berkman's not worried. He hints that satellite TV and WiMax would be natural complements to powerline technology. His view is shared by Scott Cleland, head of the Washington-based communications gurus, the Precursor Group. Echostar Communications (DISH) has gained subscribers through a marketing alliance with SBC.

But after the telcos turn on their fiberoptics, they'll no longer need DBS allies for a television package. Powerline services, like Current, would then be perfect partners: the satellite firms would supply television and the powerline firms would supply broadband and telephone service. "It's a marriage of necessity," says Cleland.

But WiMax will be an even better fit, suggests Current's Berkman. WiMax and Wi-Fi networks will need to blanket a metropolitan area with antennae, then backhaul the communications traffic from all those antennae. A utility's poles are perfect antenna perches, and backhauling will be well-served by the robust uploads of broadband-over-powerline. So subscribers would get wireless-phone and computing service around town, with a big wired pipe to their homes.

"We think that Wimax is enormously our friend," says Berkman.

He may have reason for that belief. I wouldn't be surprised if Current announces some cross-technology partnerships in the not-too-distant future.

3 Comments:

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10:19 PM  
Blogger Joe Muka said...

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