There seems little doubt that the days of the 56Kbps modem are limited. Analysts worldwide are forecasting that over the next five years broadband - whether it be digital subscriber line (xDSL), satellite or cable - will become the dominant method of connecting to the Internet for desktop and notebook computers.
In Australia, more than 1000 new subscribers a week are signing up for satellite or cable access and by mid-2002 Telstra will have completed its asymmetric digital subscriber line (ADSL) rollout to around 96 per cent of all homes.
But in its initial phases, this rollout of broadband will hold little joy for the channel. Unlike the standard analog modem, which has always been a retail item, cable and xDSL modems are being solely distributed by telcos as part of their broadband package. While Telstra and Optus claim this situation will change because they are not interested in being in the hardware business, it is not likely to provide major opportunities for the channel until mid next year. Even then, service providers will have to offer pricing plans that provide the incentive for consumers to buy their own modems.
Until now, local telcos have refused to allow "outside" modems to be connected to their systems, however, with the recent adoption of the Data Over Cable System Interface Specification (DOCSIS) standard, cable modems will begin filtering into the retail channel and it is a market retailers want to get into.
Internationally, demand for high-speed broadband access connections outpaced supply of modems during the first quarter of 2000, according to analyst Dataquest.
According to analysts, the first quarter registered extraordinarily strong shipments of cable modems, as the worldwide demand for broadband access continued unabated.
But that growth is providing little reward as yet for the retail channel because the majority of modems were provided by Internet service providers (ISPs) as part of their pricing packages. "Broadband service providers installed high-speed modems as fast as they could take delivery, and there was literally no stock of inventory to be had during the period," said Patti Reali, senior analyst for Dataquest's e-Remote Access Worldwide program.
Motorola dominates the international market, with a 33.2 per cent share worldwide and around 50 per cent in Australia as a result of its tie up with Telstra's Big Pond Advance. Nortel has most of the remainder of the local market through its tie up with Optus@Home, however there is now nothing apart from economics to prevent cable users using their own modem providing it is DOCSIS compliant. The problem is that cable modems are still expensive and the price plans being offered by service providers that allow subscribers to absorb the cost of the modem into their monthly service fee makes that option much more attractive than buying a modem outright.
DSL connections in the home are predicted to grow even more quickly than cable modems over the next five years. Analysts say home consumers will increase their use of DSL lines rapidly because, although DSL speeds are theoretically lower than cable modem speeds, they do not face the same congestion problems.
"DSL technologies have barely started to tap the total available market for broadband Internet access," said Kathie Hackler, principal analyst for Dataquest's Remote LAN and Internet Access Worldwide program. "In this early stage of the market, xDSL is mainly being deployed as a business tool for telecommuters and SOHOs, while cable modems have been more targeted for consumer/residential applications. With the market momentum that both technologies are gaining, it appears, for at least the next five years, that both will be market winners."
The introduction of USB cable and ADSL modems could provide the breakthrough the channel has been waiting for to get into the market. Connecting a USB broadband modem, compared to connecting an Ethernet-based modem, is as simple as plugging the device into a PC running Windows 98 and installing the appropriate driver. The installation of a USB cable or ADSL modem is similar to the installation of any other USB peripheral. The PC chassis is never opened, allowing consumers to enjoy their new broadband Internet link within minutes.
No specialist knowledge or potentially complicated settings are required and with the new generation Windows ME optimised for USB broadband connection, many of the problems associated with them have been eliminated.
Intel sees the spread of broadband as a key part of its Internet strategy and earlier this year unveiled its PRO/DSL 3100 Modem, which connects through a USB.
While Intel also offers a PCI internal version of its ADSL modem, it is the USB model that holds the greatest potential for the channel. Both are currently undergoing certification for the Australian market and should be available in the fourth quarter of this year.
According to Sean Casey of Intel Architecture Product Marketing, Intel is trying to work "both ends of the wire" with ADSL. We are doing modems for the desktop as well as providing equipment for the telcos. From a marketing sense there are a couple of ways we can bring our ADSL products to the market, either through our channel partners who are already selling PCs or by teaming up with telcos or ISPs and offering it as a service. We would like to see it go through multiple channels.
"We would really like to see broadband become as common as the [analog] modem so our products could be sold already integrated into PC or as easy-to-integrate PCI-compliant peripherals," Casey said.
"We would like to see broadband in every home down the track, because it would widen the number and types of services we would be able to offer. If we go back a few years and look at Intel's whole networking strategy, it was all about big pipes to the desktop because once you get broadband to the desktop you get much better services and value out of the PC platform. The USB device would be ideal for the upgrade market," he added.
Motorola also sees USB as being a key factor in the market and in opening the door for retailers. However, unlike Intel, Motorola doesn't have an ADSL product. Its interests lie in the cable modem market.
Judy Marriott, Motorola's business development manager for broadband communications, says retailing has so far not been a good option.
"It is a fairly expensive channel for us. We approached both [major] service providers in Australia and asked if there was a process by which we could have our cable modems endorsed by Telstra or Optus so the purchaser would have confidence in purchasing one in a retail scenario.
"However, they said it was probably 12 months away before they would have an endorsement program for the modem. That was three months ago. There is also no pricing plan that makes it competitive or attractive for consumers who have purchased their own modem. Until the pricing plans give some incentive for the consumer to purchase a modem individually, we don't see the retail market taking off in any great volume, at least not in the immediate future," Marriott said.
However, there is a future for the channel and it could come through home networking.
"We see home networking as a pretty significant growth area and you will see some announcements coming soon about home gateways. There is a lot of talk in the industry as to whether the cable connected home gateway is going to emerge from a network device such as a network router or whether it is going to come from the television or the entertainment set such as your set top box with DOCSIS cable modem, telephony services, Internet access, and video-on-demand etc," she said.
Later this year, Motorola will release a multi-user version of its SB4100 USB cable modem. It is designed to provide multiple broadband access points in the home without having to have multiple Foxtel or Optus connections to the house.
"There is talk of either a wireless or an HPNA version. HPNA utilises any telephone socket within the home to provide Ethernet speed Internet access using the shared cable modem. So you will basically have a home network based on your cable modem. HPNA products will be available in the fourth quarter of this year, and the wireless version early next year. The cost will be less than $100 more than the initial cost of the modem and in time we would see the modem cost staying the same but the additional functionality being absorbed into that price, which is $300 to $400," she said.
However, while the retail channel has not been an option to date, that will ultimately change and there are already some opportunities.
"The Proxim cards that link the PCs in this type of home network are already in the retail channel and modems will eventually have to become a retail item.
"The potential is there for broadband modems to take over where 56Kbps left off," she said.
Xircom is already cashing in on the new ADSL market through a distribution deal with Telstra that will use Xircom's PortStation ADSL modem module to provide access to new subscribers.
The deal is potentially enormous for the company, and while it does not directly involve the channel, it does provide opportunities for Xircom's channel partners.
Chris McPherson, Xircom's senior director of Asia-Pacific sales, said the deal would open the door for the sale of other modules for the PortStation and it was envisaged that it would become the home gateway for many ADSL users, broadening the retail market for modules.
Bluetooth and IEEE802.11 wireless modules will come on to the market over the next six months.
McPherson said Xircom was talking with telcos trying to understand the market before putting together a retail strategy. The company planned to produce an ADSL module for its RealPort 2 card series, which would be used by travellers wanting to connect to ADSL services offered through hotels and conventions centres.
"That, by necessity, will be a retail item, however we won't see it until the middle of next year," he said.