56k Is Still a Hot Number - February 19, 2003

Orange County Register, Jonathan Lansner

The slow lane on the Information Superhighway is a darn crowded space.

Forget the hoopla surrounding high-speed Internet access. Ignore financial headaches at the likes of America Online and Earthlink, two major providers of older and slower telephone-line links to the Web.

Relatively ancient communications science, known in the tech trade as "56k," is still surprisingly robust business.

Six years have passed since modern electronics ran up against the laws of physics when it came to basic copper telephone lines. Back then, seemingly in another era, the analog modem - what ties 80 percent of users to the Web through a dial-up connection - reached its speed limit: 56,000 tiny pieces of data per second, or "56k."

Analog modems: "still kicking"

Here's a look at how Orange County played its part - through Rockwell's semiconductor group in Newport Beach that was spun off as Conexant in 1998 - in the development of the "old-fashioned" analog modem.

1955: Rockwell creates the first transistor modem, below.
1963: 9,600 bits per second modem found feasible over public phone lines
1968: Rockwell enters commercial modem business.
1984: Rockwell introduces V.22 modem, quickly becomes de facto standard at speeds about 2,400 bits per second.
1987: 9,600-bits-per-second modem
1990: Modem speeds reach 14,400 bits per second.
1992: Rockwell ships its 50 millionth modem chip set.
1994: 28,800-bits-per-second modem
1997: Modem speeds max out at 56,000 bits per second ("56k"). Rockwell ships its 150 millionth modem chip set.
1998: At year-end, Rockwell spins off modem and other semiconductor businesses as Conexant.
1999: Conexant puts modem technology in Sega's Dreamcast video game system.
2000: New v.92 modem standard for 56k modems
2002: Conexant ships its 500 millionth modem chip set.

fine for that," says Brian Packham, owner of Orange County Online that sells Internet hookups from Anaheim. "It's sort of funny, but 56k is not going away soon."

Zippy, broadband connections may be styled for this millenium, but simple and more affordable 56k links are tailored to this current era. Confusion about installation, service and security with faster technologies -- plus a recession - give the elder science a peculiar edge.

New broadband links to the Web are at least 10 times faster than 56k. Still, global shipments of old-style modem chips - 75 million in 2002 - are nearly four times greater than the high-speed silicon that ties broadband users to the Internet.

Even by 2005, industry estimates show 56k modem chips shipping 2.5 times the volume of the faster gizmos.

It's largely because most humans can do what they want to do online at the typical dial-up speed. Plus, those who haven't yet hooked up aren't likely to jump online straight to high-speed broadband links, either.

The simplicity of 56k modems -- only requiring regular telephone service to operate -- will help place it in the bulk of new setups around the globe.

"There's still a ton of people who are out of range of broadband," Packham says. "Californians are kind of jaded. Here in Orange County we can get whatever (Internet) you want."

CAT WITH NINE LIVES

Dwight Decker - CEO at Newport Beach's Conexant, long the dominant maker of modem chips that operate at 56k - admits he was wrong.

In the mid-1990s, he thought this niche would be winding down by 2000 -- no less by today -- as faster technologies caught on. In 2003, though, he brags that 56k is a good, growing business - one that produces average profit margins for his industry.

"It looks like 56k's got another decade in front of it," he says.

In hindsight, of course, the techno-cheerleaders back in the Internet bubble's foamiest moments were dead wrong. The slow lane of the Internet remains financially viable.

Take United Online from Westlake Village, the top seller of discount 56k hookups under the NetZero and Juno brands. It's a growing, profitable business with a stock that's tripled in a year.

"If you went back five years, and went back to all those broadband projections, nobody would have seen it this way," says Larry Hancock of Zoom, the No. 2 consumer seller of 56k modems.

Zoom's sales of 56k products have stayed roughly flat - at 1 million annually - for five years because 56k links, "remain a good value. And this is not a good time for big, discretionary spending."

THE BUDGET MINDER

Affordability of communications is a huge issue for much of the globe - no less, for your average recession-weary American consumer.

Cheap 56k chips - they go for maybe $10 in bulk - and cheap dial-up Internet connections make a great deal of business sense.

While a high-speed link can cost $40 a month or more, dial-up hookups run $15 at Parkham's OCO or can be found as cheap as $10. AOL and Earthlink, who both charge $20 or more for 56k links, suffer largely because of pricing pressures from the likes of NetZero and Juno.

"I'm cheapo," says dial-up devotee Don Hull, 65, of Costa Mesa, whose computer is as comparatively ancient as the '55 Packard he keeps as an old-car collector. Affordability and confusion keeps Irvine entrepreneur Aimee Spirlin, 32, in the slow lane for now. "I work from a home office and I haven't evaluated whether or not I want DSL, cable, broadband, Direct TV etc.," says Spirlin, owner of Document Scanning Solutions. "I really only use the Internet to do minimal research and mostly e-mail. So I am basically too cheap to change right now. I do anticipate changing within this year though." One reason 56k modems themselves are so reasonable is that in many new computers there's not much in the way of communications chips involved any longer.

The computer's brains, the processor, often does much of the modem's hook-up work with software programming. The only hardware in these so-called "soft modems" is gear that dials and makes the phone connection.

Another force boosting dial-up modem technology is the false promise of the paperless office.

Even as e-mail becomes a ubiquitous business tool, fax machines continue to be a popular for business communications. Those machines are powered by chips with the same old-style modem science.

Then comes something a tad edgier: new applications for 56k communications, from cash registers to business meters to kid's video games.

"Analog modems have a publicity problem. It's not very sexy to talk about," says Matthew Rhodes, head of Conexant's modem-making business which gets 45 percent of its nearly $600 million in annual sales from 56k technology. "They're just a utilitarian connection."

NEXT BIG THING?

Today's dial-up modem is not your older sibling's 56k.

A two-year old engineering standard, known as v.92, is finally gaining momentum. These kind of links allow a user to take a short telephone call on the same line while staying connected to the Web. This eliminates a major complaint about old-style modems: They hog a phone line.

It's v.92's "most striking feature," says Zoom's Hancock because, "the average person doesn't like adding that second phone line," often needed with dial-up connections.

Plus, v.92 connections should be quicker -- if the Internet service at the other end of the call accepts v.92 calls. New compression know-how also squeezes more data into some v.92 transmissions. That can quicken response times.

Certainly, nobody's suggesting v.92 will change the broadband landscape. Folks at Conexant, Zoom and OCO hedge their bets: they all sell broadband products, too.

High-speed Internet hookups are the actual future - if and when somebody makes a compelling argument to the masses for broadband links. This cutting-edge communications remains a modest niche because content and services that require high-speed Internet may be flashy but too many households cannot justify the high fees.

So until such lures are created - and at the right price - the average person will be plenty happy with the slow lane.

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