Broadband Wars Updated: Part 1

Does the AOL deal decide the cable-DSL contest? Also: Seymour takes your questions on the deal, tomorrow on the boards.
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Steve Case said this morning that one of the most interesting things about the

America Online

(AOL)

-

Time Warner

(TWX)

deal is the speed with which the new company,

AOL Time Warner

, will roll out wider availability of broadband access.

Yes ... and this does raise some interesting questions. One big one: Does this deal mark the beginning of the end in the broadband wars between cable-modem access and DSL access at home?

Lots of speculation about that right now, and we can expect to see more of it over the next few months. It's an appealing idea, to set up an imaginary contest between an AOL Time Warner-led

de facto

coalition behind cable access, and the once-sleepy RBOCs, the principal source of DSL service to American homes.

Q&A with Jim Seymour: Today at 5 p.m. ET on

TSC

Message Boards.

But I think that's building a straw-man contest.

Yes, I think that in general, cable-modem access is, medium-to-longer-term, a better choice. It's likely to be more widely available, sooner, and likely to deliver more bandwidth, for less money, to more customers.

Yes, I think it's still pretty clear that the RBOCs aren't yet ready to meet -- and maybe, not even yet ready to

understand

-- the demand for high-speed Net access.

And yes, I think the RBOCs' pricing plans for DSL show that lack of understanding. They usually attempt to match low-end 256 kilobits-per-second (Kbps) or 384 Kbps DSL service, for about $40 per month, up against cable-modem connections typically two or three times as fast for about the same monthly charge.

But to try to see how the endgame plays out requires looking beyond today's semi-fast access offerings toward "real" broadband, which I define as 6 to 8 Mbps. For about $40-$50 a month.

Cable realities:

The cable people deliver a service that can be accessed, as they upgrade their cable plant, install routers, etc., anywhere on their systems, at every house they "pass by" in cable-talk, at about 700-800 Kbps. To you and me, that looks fast, and we're pretty happy. Web pages fairly snap onto our screens.

That speed is shared, however, with other cable subscribers on your network node; if there are a lot of other cable-modem users on your block, and they're all online and active at one time, your effective speed can drop sharply.

Cable companies can limit that dilution of your effective speed by creating network nodes with fewer users per node, but right now that's not very interesting to them, as they're trying to just get the service Out There, available and in use in as many of the homes they pass by as possible.

Today, cable access is a game of numbers: sign up as many customers as fast as possible. Tomorrow, it will be a different kind of numbers game: a quality-of-service effort, delivering the fastest performance to those who have signed up.

DSL and the telcos:

On the DSL side, we see RBOCs (the former "regional Bell operating companies"), which, as the clearest possible manifestation of their "not-getting-it-ness," are trying hard to slice and dice their DSL service packages in ways that effectively discourage residential customers from getting connection speeds in that 700-800 Kbps range of typical cable connections.

(They are also the victims of a limitation in current DSL technology that usually restricts the availability of ADSL connections, the kind they want to sell you for home use, to customers within three miles or so of the nearest telco switch. Unlike the cable operators, no matter how much they upgrade, they can't offer fast access to all the homes they "pass by," nor even to all the homes they serve.)

They do their slicing and dicing on rates and pricing with tiered service, letting you choose the speed you get by what you're willing to pay.

In the RBOCs' world view, speeds higher than 256 or 384 Kbps are not needed at home; those are really

business

services, for which they want to (and do) charge a hefty premium. (This doesn't apply in all areas: Some RBOCs sell what they call full-rate ADSL service, which delivers a very cable-like 700 Kbps or so, at a $40-$50/month flat rate to residential customers.)

Take

Qwest

(Q)

, for example, as good an example of a hot-shot,

ought-to-get-it

broadband company as I can imagine, and its DSL offerings through its captive RBOC, the former

U S West

. Qwest has every incentive to demonstrate how fast its DSL service can be, right?

You can take a look at U S West's

DSL pricing for residential customers for yourself. You'll find it wants $29.95 per month for what it calls

MegaBit Deluxe

ADSL residential Net-access service. But that is, ahem, only a 256 Kbps service. What if you want something faster? Say, maybe 512 Kbps, or even the cable-competitive 768 Kbps service that ought to be the slowest DSL service sold in the U.S.

Why, yessir, you can get that. Of course it'll cost you just a little extra -- and

those

prices aren't found on that Web-based DSL rate card. For 512 Kbps, you'll pay $104.95; for 768 Kbps it's $129.95. Per month.

Every

month.

What if you're a real bit-hawg, and want still more?

The residential MegaBit Deluxe online rate card also says you can get 1-, 4- and 7-megabit-per-second (Mbps) service. But let me tell you, you

really

have to want it. Because when I called U S West's friendly MegaBit Deluxe help line this afternoon, they said residential 1 Mbps service is $224.95, 4 Mbps service runs $619.95, and 7 Mbps ADSL connections cost a stunning $1,014.95. All per month.

Oh, yes: There's also a $149.95 installation charge -- though the whole point of ADSL, a limited subset of real DSL service, is that installation is supposed to be a no-brainer, which doesn't even require a phone guy to come to your house to hook it up. (And if he does come, all he does is install a tiny line-splitter, a two-minute job if he's kinda thick.)

Are you beginning to get the picture?

Sure, some RBOCs do better than U S West -- which, after all, has long earned the term "U S Worst" among its customers. But Qwest assured us all that had changed. And since Qwest has such a manifest interest in showing us, via its U S West subsidiary, just how cheap and fast home ADSL service can be, should we really expect better from other RBOCs?

More

tomorrow on why this kind of nonsense is so embedded in telco thinking, and the implications for the future of broadband in the U.S.

Talk about it:

Don't forget to post your questions on the AOL-Time Warner deal on our

message boards. I'll be back at 5 p.m. ET Tuesday to answer questions on the $174 billion deal.

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long Qwest, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at

jseymour@thestreet.com.