Pipe war

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McKinsey quarterly

Pipe war

Which broadband technology will win the race for homes and offices?

The McKinsey Quarterly, 2001 Number 1

Phase two of the digital revolution is hard upon us. During the first phase, members of about 35 percent of US households and 17 percent of European ones became active Internet users.

<sup>1During the second, broadband high-speed Internet access, which delivers applications such as teleconferencing, interactive entertainment, and serious distance learning will make its way into homes and businesses around the world.

In the United States, two main broadband technologies Digital Subscriber Line and cable will usher in the new era. Within four years, one-quarter of the country’s homes and more than 40 percent of its small businesses are likely to be using one of them.2Both technologies rely on wires originally laid down for other purposes. DSL travels over ordinary copper telephone lines, which span the “last mile” from a telephone company’s local service office to the home. Cable runs through coaxial cables, which have delivered pay television to many US homes for at least three decades.

Although both technologies will probably claim meaningful market share eventually, the question of which will take the lead especially in higher-margin market segments is of no small concern to the companies that have staked large bets on the outcome. AT&T, for example, spent tens of billions of dollars to acquire cable systems across the United States, while incumbent telephone companies such as SBC Communications have invested heavily in upgrading their networks to accommodate DSL.

In Europe, the landscape is different. For starters, fewer households have access to the Internet, so many homes not yet connected to it will move straight to broadband. Second, because cable television in Europe has never approached the popularity that it enjoys in the United States, Europe lacks an extensive cable network. Where cable systems do exist, they are often owned by the very telephone companies that control the only other wire into the home. This monopoly has made it possible for such companies to delay carrying out the upgrade required for broadband access through either medium, thus allowing other technologies particularly satellites and ground-based microwave receivers to become serious contenders in certain places. The end result is likely to be a patchwork landscape where various technologies compete in odd combinations for local dominance.

“DSL will win where it matters”and“Cable is too much better to lose”address the battle between cable and DSL in the United States.“Europe’s high-speed mosaic”sketches the broadband picture now emerging in Europe.



1These figures are based on research from Morgan Stanley Dean Witter and the market research firm eMarketer.

2These estimates come fromBroadband!, an industry study (released in January 2000) that was conducted jointly by Sanford C. Bernstein & Company and McKinsey.


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