New Modem Standards May Shuffle Market

The stranglehold that Motorola Inc. and Nortel Networks
have on the cable-modem market is likely to loosen as the implementation of industrywide
standards draws more players.

New projections by Cahners In-Stat Group (a sister company
to Multichannel News) also forecast that end-user sales volume for cable modems
could jump by 84 percent in the first nine months of this year, compared with the total
for all of 1998, while digital-subscriber-line modem sales in the period could nearly

Although total volume shipments remain relatively small
when compared with the maturing analog-modem market, digital growth for both platforms
should accelerate late this year or early in 2000 as several factors emerge. Among those:
cable rebuilds cover more territory, telcos escalate their marketing of DSL and
standards-based modems become available in quantity for retail shelves and as embedded
personal-computer options.

"From the market perspective, standards always push
the market faster," In-Stat senior analyst Shannon Pleasant said. "But although
this is a hot market, the reality is that there's still not a lot of volume in
comparison to the traditional analog market."

Total cable-modem shipments of 355,000 and total
asymmetrical DSL shipments of 79,000 in the fourth quarter represented sequential unit
increases of 44 percent and 86 percent, respectively, versus the third quarter.
Analog-modem makers shipped 14 million units, up 7 percent from the previous three months.

Early cable-modem entrants Motorola and Bay Networks Inc.
-- the latter now owned by Nortel -- accounted for just over 60 percent of the total
market in the quarter, with Motorola holding a commanding 42 percent. Rounding out the top
five were Com21 Inc. (10 percent), Terayon Communication Systems (8 percent) and 3Com
Corp. (6 percent).

Pleasant noted that the lower three of the top five
garnered several significant modem deals, primarily outside of North America, boosting
their shares during the quarter.

Vendors also said that trend will not only continue as
overall industry volume grows, but it will be repeated as newer entrants from the
consumer-electronics sector leverage new industry standards with their huge retailing
channels to muscle their way into the market. These aspirants include Sony Corp., Thomson
Consumer Electronics and Samsung Telecommunications America Inc

"All of those guys are looking to take market share
away from Motorola, Nortel and Com21," said Rich Nelson, director of marketing for
cable TV at Broadcom Corp., which provides about 95 percent of cable-modem chip sets.
"Motorola and Nortel clearly have the highest-percentage shares, but it will be a
challenge for them to hold onto those."

Cable Television Laboratories Inc.'s initial
certification last week of modems that meet the industry's Data Over Cable Service
Interface Specification is widely expected to accelerate retail sales. Under DOCSIS, cable
customers can buy any brand of compliant equipment with confidence that it will work
almost anywhere.

But Pleasant said not to expect a retail explosion this
year, partly because further evolution of standards could slow sales through the end of
1999. Pleasant noted that DOCSIS 1.0 will soon give way to the enhanced protocols of
DOCSIS 1.1 and, eventually, DOCSIS 1.2, with makers of hardwire-programmable modems unable
to provide compliance through the simple software upgrades that consumers have grown used
to with PC operating systems and analog modems.

"All of those dynamics don't do a lot to get a
market on its feet," Pleasant said. "The overall impact is going to be some
confusion over the rest of 1999, with everything ironing itself out toward the fourth
quarter, when we see more products out for retail."

The market for DSL modems remains much more fragmented than
that for cable modems. Cisco Systems Inc. held the top market share in the fourth quarter,
with 32.8 percent, followed by Nortel's 15 percent and Alcatel Alsthom's 13

Pleasant said the DSL market had been slowed partly by a
variety of factors, ranging from technical issues associated with the consumer-oriented
"G.Lite" standard -- which is still awaiting final approval within the
International Telecommunications Union -- to sluggish DSL deployment by the telcos

The coming year will see the market gain momentum, as more
G.Lite products become available and PC makers begin embedding DSL modems in their boxes.

According to Pleasant, "1999 is the year when the
telcos will have to prove that they're serious about providing high-speed access.
This year, if they don't make things happen, they'll continue to get blown out
in the marketplace."