Chicago Tribune


 NEW ERA FIRES UP RACE FOR BROADBAND ACCESS
   EARLY PACE MODERATE AS AT&T LEADS SBC
   By Jon Van
   January 16, 2000

   A "new medium for a new millennium," the big idea behind America
   Online Inc.'s takeover of Time Warner Inc., definitely won't arrive in
   Internet time.

   It'll be more like snail mail.

   AOL chief Steve Case's enthusiasm for taking the Internet into a new
   era of audio and video depends upon constructing the so-called
   broadband networks that can deliver data at speeds 100 times faster
   than today's dial-up modems.

   And even though giant telecommunications corporations are spending
   billions to build broadband networks, construction won't be complete
   for at least a few years.

   In Chicago, the race into broadband is mainly a two-way contest
   between AT&T Corp. and SBC Communications Inc. AT&T owns most of the
   cable television systems in the region, making this its biggest cable
   TV market, while SBC owns the local phone system, operating under the
   Ameritech name.

   Already, AT&T has an early lead.

   Its cables pass more than 2.5 million homes in the Chicago area, and
   almost one-third of those homes can have high-speed on-line hook-ups
   if they want, said Bob Krahman, director of AT&T@Home marketing in the
   area.

   By the end of this year, Krahman said, two-thirds of the homes will be
   ready to connect to AT&T's high-speed on-line service, with the entire
   region poised to be covered by the end of 2001.

   AT&T already has thousands of high-speed Internet customers in the
   region, compared with fewer than 1,500 for SBC's Ameritech, which has
   been very slow to launch the digital subscriber line, or DSL,
   technology that can turn regular copper phone lines into a broadband
   information superhighway.

   Just after it took over Ameritech in October, SBC launched a $6
   billion, three-year effort to upgrade most of its phone networks to
   DSL. By the end of 2003, about 80 percent of Ameritech's Illinois
   residential customers should be able to buy DSL.

   But the broadband networks offered by AT&T and the one Ameritech will
   build have major differences.

   While speeds on cable TV modems are up to 100 times faster than
   dial-up connections, SBC's broadband service will be more like 10
   times faster. Also, AT&T's cable connection is designed to bring full
   motion video as soon as on-line services offer it, but SBC's ability
   to carry video will be anemic.

   William Adams, SBC's director of technology planning, said that it
   will be possible to connect DSL lines to computers or to set-top boxes
   that are attached to TV sets.

   But even after its three-year upgrade, SBC's system won't be able to
   deliver broadcast quality video, Adams said. That would require a
   further upgrade as ambitious as the one just announced, he said.

   "At this time, cable definitely has the advantage, both in Chicago and
   nationwide," said Len Dedo, senior vice president of marketing for
   Focal Communications Inc., a Chicago-based local phone carrier that
   serves business customers and offers them DSL.

   "Based on the way SBC has drawn specifications for its product, cable
   should have an advantage with residential customers for the
   foreseeable future," Dedo said.

   Time Warner's ownership of the nation's second-largest cable TV system
   is one reason that AOL decided to buy it. AOL wanted to be assured of
   having access to cable TV platforms as well as to broadband networks
   being built by phone companies like SBC.

   AOL's Case envisions on-line services expanding from computers to TV
   sets, providing rich video and audio, as well as the text and graphics
   that dominate today's World Wide Web pages.

   If AOL's merger is completed by year-end, as Case expects, the
   combined firm could begin to offer enriched on-line services to people
   who have broadband connections as early as next January. But those
   offerings probably won't be much different from what's now available,
   said Gary Kim, president of NextGen Data Research, based in Denver.

   "Steve Case is dead-on with his vision of a new medium that is
   video-rich yet distinct from TV," Kim said. "But it will start slow,
   with small changes. Any new medium will take time to form until people
   begin to understand how to use the new capabilities."

   Rolling out a new Internet medium also probably will be limited by
   consumer lethargy.

   Most people who go on-line over phone modem hook-ups now complain
   about slow speeds, and this frustration constitutes the major demand
   for broadband. But that demand by itself evidently won't create a new
   mass medium.

   AT&T @Home's Krahman said that in parts of the Chicago region, such as
   Arlington Heights, where cable-based on-line service has been
   available for a year or two, only about 10 percent of the customers
   have signed up.

   That low response mystifies some industry experts.

   It's hard to see why Internet enthusiasts wouldn't buy into broadband
   as soon as possible, said Terry Barnich, a Chicago telecommunications
   consultant. "The costs are reasonable and likely to drop," he said.

   AT&T's cable modem service runs about $40 a month, which is about
   double AOL's traditional dial-up service. But most Internet
   enthusiasts find they need a second phone connection because they're
   on-line so much.

   Considering the cost of $20 a month for a second phone line as well as
   $20 for an Internet service provider, getting AT&T's $40 high-speed
   broadband service doesn't cost any extra, Barnich said.

   SBC's broadband service is priced at about $50 a month. It also
   includes about $200 in set-up fees, but those are waived to customers
   who agree to at least one year, said SBC's Adams.

   While broadband connections are much faster than standard dial-up,
   they're also far more complicated to obtain. In the case of DSL,
   existing phone wires inside a customer's home will be inadequate to
   run the service in about one-fourth of older houses, said SBC's Adams.
   New inside wiring would be required.

   Technicians also may find that the connection between a customer's
   house and SBC's central office is attached to equipment that blocks
   DSL signals, or that the customer's Internet service provider can't
   decipher those signals.

   And while some computers come already prepared to be hooked into
   broadband, others require installation of additional equipment.
   Technicians from the broadband supplier should determine whatever
   equipment is needed and install it, Adams said.

   Someday, people who want DSL from the phone company may be able to buy
   their own equipment and install it themselves, said Adams, but that's
   not SBC's policy now.

   While SBC and AT&T are the biggest broadband players in the region,
   they're not alone.

   Chicago-based 21st Century Telecom Group Inc. supplies cable TV,
   broadband Internet and phone service to parts of Chicago's North Side
   in competition with AT&T and SBC. A firm with financial backing from
   Microsoft Corp. co-founder Paul Allen, RCN Corp., is buying 21st
   Century.

   More than a dozen companies in Chicago supply DSL to business
   customers, including Focal Communications, and a few also target
   residential customers. But the companies providing DSL to homes almost
   all must lease copper lines from SBC/Ameritech, making them subject to
   many of the same system limitations that Ameritech faces

   Still, even if broadband connections in the Chicago region take a few
   more years to complete, competition virtually assures they'll arrive
   eventually. In the end, the race between AT&T and SBC could be only
   the first round.


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