The fate of the modem

The fate of the modem

Many critics claim the external modem is an endangered species, not capable of matching the price competitiveness of internal versions. So, asks Renata Murawska, is the external modem dead and if so will new markets open up to replace it?

OK, these are the facts. Internal modems are cheaper than external ones. Harvey Norman has only two modems in its 1999 catalogue, compared with 10-12 in previous years. Last month Hayes went under the bidding hammer in the US, in accordance with Chapter 11 of the Bankruptcy Code.

You could be justified in saying that the external modem market is overcome by deadly symptoms. Still, you could also say that it is not dead yet. And even if it was, you might find some consolation in my grandmother's folk wisdom which would have it that for every closed door there are three others that open, or in the case of the modem market, even four.

But before investigating the potential treasures behind the half-open doors, let's take a closer look at a few titbits still lingering on the modem plate.

Internal or external

When Queen Elizabeth sent her first e-mail in 1976, little could she know that 20 years later some 150 million Internet users around the world would be faced with choices grander than "to press or not to press the damn button".

Apart from the crucial technical specifications, one of these choices is the packaging of the modem.

Although it is a rarity to see external modems attached to PCs in corporate or government environments, for many of the 1.5 million home Internet users in Australia the external modem is par for the course in their computer mediated communication.

In fact, a majority of the private Internet users surveyed for the purposes of this article expressed unease with the idea of the internal modem, expecting that the need for a modem upgrade would come before they had to buy a new PC.

True, this survey carried much more sample bias than I would have liked, but it cannot be dismissed that in spite of the overall trend in the market, there still remains a segment devoted to the freedom and flexibility offered by the external box.

Graham Penn, general manager for research at International Data Corporation (IDC), agrees that "although it is not growing, there will always be a market for people who want to upgrade their external 14.4Kbps and 28.8Kbps modems". He also adds that "the demand will not go away quickly, but the trouble is that once a market starts to swing, people put less R&D dollars into developing next generations. Therefore the external modem market will be declining, yet the rate of this decline will be partially determined by what happens in other parts of the market."

Of course, one such market determinant will be the fact that practically all new PCs come with internal modems, usually 33.6Kbps, but also 56Kbps. Penn points out that "most PC users today are experienced and they know what they want, so if they have a 14.4Kbps or a 28.8Kbps modem and if they've got to buy a PC at the same time, they're not going to go out to be convinced by resellers that they should have an external modem".

Yet, for instance Anthea Cahill, promotions manager of Australian-owned Maestro, claims that the Australian modem market in general is not too fast at rolling out the red carpet for internal modems. "Larger countries such as the US are a mass market for internal modems, whereas in a country like our own with less people and more diverse requirements external modems are far more popular," Cahill says, adding that "the one-size-fits-all" solution presented by mass produced standard internal modems simply doesn't meet the needs of Australian consumers.

For very different reasons, Gary Jeng, managing director of Protac, assures that "there is still some opportunity in the external modems market. It lies in speed." While reaffirming the presence of its motherboards with built-in modems in the Australian market, Protac plans to release its next-generation external modem here next year. Protac officials claim it "will be 20 times faster than today's standard".

Point of sale

Before the end user has a chance to test the new analog speeds, Tony Gattari offers an analgesic recipe to relieve the pain of dwindled modem margins. General manager of computers and communications at Harvey Norman, Gattari suggests looking into "selling a modem with some sort of Internet connection with it, because the Internet connection allows the reseller to earn some money in the back door from ISPs, exactly like in mobile phone markets.

"Easy set-up is the most important feature that end users are looking for in a modem," he emphasises, adding that "there is a lot of impatience in consumers now; they buy a modem and they want to get on the Internet, they don't want to mess around with cables.

"While price and ease of installation are the features that sell modems to home users," he says, "the small business buyer is mainly looking for reliability and speed."

The external modem has industry standards, ease of use and reliability, at least at most times, on its side. What it hasn't got is the pricing of the internal modem.

Protac takes this argument further, expecting internal modem prices to fall to as low as 25 per cent of the equivalent external modem, at the end of 1999. "If you can provide a total solution at the cheapest price and reliable quality, the end user doesn't really care what that solution entails," says Garry Jeng.

So yes, the standard external analog modem, even if it really delivers the promised 56Kbps, might not be the hottest ticket in town, yet it might not be a losing one either. Or at least not yet, as long as you target the right market segments, and at the same time not lose sight of new opportunities hiding behind the half-open doors.


Consumers less concerned with a dollar, but ready to sell their souls for a few thousand - or even better, a few million - of extra sent and received bits, could find some alleviation in Asymmetric Digital Service Line (ADSL), Integrated Services Digital Network (ISDN), or cable modems. While ISDN provides two voice channels or a 128Kbps data channel, DSL transmits 1.5 to 9.0Mbps over standard telephone lines. DSL may in time prove a faster solution than a cable modem, whose downstream bandwidth of up to 30Mbps is counterbalanced by the slow upstream traffic.

With hardware including an Ethernet card costing some $600 to $650, cable modems are not quite ready to enter the mass market today, yet just a few years ago neither were analog modems. For now, Telstra offers a connection fee of $29 and a monthly access fee of $65 plus 35 cents for every megabyte of data transfer over the first 100 megabytes.

ISDN proves to be an even more costly option with Telstra. The hardware is still about $500-600, yet the hefty $295 set-up fee, data charges and a $60 monthly fee may be off-putting.

As IDC's Penn puts it: "The need to be connected as fast as possible is there, what fills it needs to be determined, but in the long term, all gates are open with a number of competing technologies."

Although reluctant to make any firm predictions, Penn stipulates that the "cable market will dominate the market in the near future". He adds that, coming from a very small market base, it is bound to achieve a very high growth rate over the next three to four years, with pricing and cable availability being the major factors at play here.

While Harvey Norman's Gattari sees DSL and cable modems being at the fringe of the current market, Gerhard Rumpff, 3Com's CEO, predicts that "different modes of communication, including ADSL, ISDN and cables, will create a new modem market, a lot of which will be sold through the reseller and retail channel". He also believes that "cable modem is going to start happening in Australia very soon, even within this year".

Citing commercial confidentiality, Rumpff alludes to "various organisations around the country with whom 3Com is working on cable projects at this very moment.

"It's all horses for courses. The future of things like DSL depends on pricing and how it is marketed. For instance, ISDN could even today be a great option for small business, but only if it's priced correctly," he says.

So once again, how can resellers recover the Golden Fleece of once podgy margins?

Strategies and solutions

One way of regaining balance in the flighty modem market would be strategic positioning for the future.

Rumpff asserts that, apart from winning a bigger share in the modem market, 3Com's strong investment last year was mainly a strategic movement to get a better branding in the market and to be ready for the coming of cables, ISDN and other modems.

Peter Feeney, managing director of Innovative Systems, revealed the company's strategy to increase presence in the volatile market of computer mediated communication. "Because the modem has become a consumer commodity and because of dwindling margins, we are trying to move out of hardware and into selling services."

If changing focus from product to service carries little appeal for you, maybe a move to the mobile communications market would.

Consistent and stable in its growth, the mobile market offers PC Card modems. With prices comparable to those of external modems, PC Card modems might help to swell somewhat deflated margins. Chris McPherson, Xircom's country manager for Australia and New Zealand, agrees: "From the mobile perspective, the modem market, as far as notebooks are concerned, is growing rapidly, and it is going to continue to increase.

"That's why PC Card is a large area of current technology that Xircom is investing in. There is a definite growth in that market and also in communication devices for handheld computers, PDA and so on," McPherson says.

Yet, there are still 80 per cent of Australians who in August 1998 remained unconverted to the joys of the Internet and unlikely to access it from home in the near future. The greatest barrier, named by 31 per cent of those surveyed by the Australian Bureau of Statistics, was the high cost, followed closely by lack of interest.

So let's get those Sunday schools rolling, in the meantime doing promotional bundling and not forgetting to watch out for early adopters - they might just know which goose will be the next one to lay a golden egg.



Maestro's Woomera 56Kbps Fax/Voice/Data Dual Compatible Modem is designed specifically for the Australian market with special attention paid to the needs of people in remote areas and those affected by poor quality telephone lines.

Its Switchable Impedance Network feature automatically selects the right impedance of the telephone line, therefore maximising signal throughput and improving connection performance.

The modem supports K56flex and V.90 thus ensuring backward compatibility. Its other features include Flash Upgradeability, an in-built speaker phone and microphone, Distinctive Ring, and Adaptive Answering.

Woomera can identify the caller even when the PC is switched off. Its Liquid Crystal Display replaces the standard indicator lights and provides current status report and call progress monitor. The Aboriginal name refers to the tool used to accelerate the flight of a spear.

For an RRP of $299, Woomera includes a Rockwell-based chipset, Hayes-compatible AT command set, and free lifetime technical support.


NetComm claims its Roadster II 56 USB, Home Office Desktop Faxmodem is the first analog modem with Universal Serial Bus (USB) connectivity to be sold to the Australian market.

Supported in Windows 95 & 98, USB replaces serial and parallel port connectors with one port combination and one standardised plug which eliminate the need for a separate power cord for the modem.

Roadster II 56 USB supports V90 technology, which combined with USB establishes its maximum download speed at 56Kbps, and maximum throughput at 230.4Kbps. It works with fax, voice and data. It is equipped with Simultaneous Voice and Data (SVD), which allows users to talk and send data at the same time.

Ease of installation is one attribute accentuated by NetComm. Other features include error correction to improve data flow, data compression to increase throughput fourfold, and a distinctive ring to differentiate between signals sent by the modem and the regular voice connection.

Symantec's best-selling fax software WinFax PRO, sold separately at $120, is also included, enabling the modem's full voice and telephone capabilities, and working in conjunction with Microsoft Exchange and Outlook.

For the total price of $299, Roadmaster II 56 USB comes with a headset that "turns your PC into a hands-free phone".

The modem was released in Australia in December.


The 3Com U.S. Robotics V.90 Professional Message Modem range is claimed to be the first on the Australian market capable of receiving voice and fax messages even when the computer has been turned off.

Its Independent Voice Messaging can store up to 20 minutes of voice messages and 50 fax pages at any time.

The messages can be retrieved from remote locations through a dial-up connection.

Professional Message Modem also forwards received faxes to a predetermined phone number, again regardless of whether the computer is switched on or not.

The modem includes V.90 56K standard as well as x2 technology for up to 56Kbps download and up to 31.2Kbps upstream speed. While x2 takes care of the backward compatibility, Flash ROM Memory is said to ensure ease of future upgrades.

The modem also supports V.80, which makes it videoconferencing-capable.

Windows Plug and Play enables easy installation by automatically detecting and configuring 3Com's Modem.

The package includes touch-sensitive volume control, a built-in speakerphone with echo cancellation, one-button access to voice message, and point-and-click Windows software to manage voice and fax messages.

The RRP for 3Com U.S. Robotics V.90 Professional Message Modem is $329, with extras such as headphone and sound card available separately.


Xircom's RealPort Modem 56 Integrated PC Card Modem offers a cable-free notebook communication solution for domestic travellers.

Integration of both modem and telephone handset pass-through connections into one PC card modem eliminates the number-one problem for PC card users - broken cables and broken pop-out jacks.

Brought to Australia by Xircom only a few weeks ago, RealPort Modem 56 uses standard telephone cords and simultaneously supports V.90 and K56flex, claiming the maximum speed of 56Kbps.

According to Xircom, the modem is easy to use and supported by a wide range of network operating systems, including Windows 95/98 and Windows NT. It is said to allow incoming calls to be received without disconnecting the modem cable. The modem's Digital Shield gives it protection against high-current digital phone lines.

Having users' savings in mind, Xircom armed its RealPort Modem 56 with BatterySave's low-power sleep mode and Wake-on-Ring feature to receive information when the system is powered down. Xircom also claims that its Integrated PC Card reduces support calls, user down-time and eliminates cable replacement.

Single units are priced at $275, but five, 20 and 100-unit multi-packs are also available.


Maestro Tel (02) 6230 3377 Tel (02) 9878 7333 Tel (02) 9937 5000 Tel (02) 9911 7790

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