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Thursday, November 12, 1998 Published at 12:26 GMT

Business: The Economy

High speed Internet bust-up

Content providers like AOL fear being squeezed out

One of the most annoying things about the Internet can be the slow connection speed, with its frustrating delays in downloading.

Now all that could change. New technology that allows connection speeds 100 times faster than those currently in use, allowing video on demand, is already being introduced in the USA.

This broadband technology works through fibre optic cables used to deliver cable television.

But a huge business battle is shaping up between cable operators and other Internet Service Providers (ISPs) over open access to the new broadband system.

The two biggest cable operators in the US, Time Warner and TCI, have set up their own ISPs - called Roadrunner and @home respectively - to launch the new service.

They are preparing to spend billions of dollars on gearing up their networks for the new technology.

But the new systems will make it almost impossible for subscribers to interconnect to other ISP companies, like America Online, the dominant provider in the US.

AOL has 14m subscribers, compared to only 300,000 who can access the new high speed services. But the new services expect 2m subscribers by the end of next year, and within five years a quarter of US internet users are expected to move to the new faster connections.

Ruling on merger

The cost of installing the new fibre-optic system has led the biggest cable company, TCI, to agree to a $48bn merger with the largest long-distance telephone company in the USA, AT&T.

AT&T also hopes to use the new fibre optic connections to provide local telephone services more cheaply than its rivals.

Now US Federal Communications Commission must decide shortly on whether to allow the merger.

AOL chief executive Steve Case has been pressing for AT&T to allow his company to connect to the new broadband services.

"We've long believed that it's important for broadband infrastructure to be open and sold through multiple providers..we look forward to entering in a broadband reseller agreement with AT&T," he said in a statement.

But AT&T chief executive Michael Armstrong has made it clear that the company intends to continue "bundling" its products to recoup the huge costs of building the infrastructure.

"No company will invest billions of dollars..if competitors who have not invested a penny of capital or taken an ounce of risk can come along and get a free ride on the investments and risks of others," he told an industry forum.

Adding to the rivalry is the fact that over the summer AT&T tried to buy AOL, but was rebuffed.

Other public interest groups also object to the merger. They fear that the cable companies will use their closed system to restrict access to others.

The FCC now faces a difficult choice.

If it blocks the merger, or puts conditions on it, the introduction of a key new technology for the Internet could be slowed.

But it if allows it to go through unchallenged, the US cable industry could gain a stranglehold on the web.

Telephone rivals

Local telephone companies are also at risk from the new high speed internet connections.

They can be used to offer internet telephony as well as taking away their data transmission business.

The regional telephone companies have responded by developing a rival system of broadband access called ADSL, which uses existing telephone lines to offer slightly less speedy connections.

But that system offers slower two way communication and is limited to telephones within a few miles of the company's central switching system.

Telephone companies have been slow to install it except in areas served by their cable competitors. They are wary of the cost of installation and worry that they may undermine their existing revenue from using the Internet.

Coming soon to the UK

In the UK, despite a deregulated telecoms market, there is still no consumer access to broadband internet connections.

BT has been promoting its ISDN service, now called BT Highway, which offers up to128,000 bits per second, a big improvement on current speeds but only one-tenth the speed of the new services.

In the next few weeks BT will announce its plans to roll out ADSL.

It is already piloting a version of ADSL in parts of London, but is not sure how many residential customers will want such fast access.

Nearly 4m homes receive cable in the UK, most with fibre optic networks. Telewest is already experimenting with cable modems.

One of the smaller cable companies, ComTel, based in the Thames Valley, joined the @home alliance before being taken over recently by NTL.

Cable operators in the Netherlands and Belgium are also planning to roll out similar high speed connections.

With everything to play for, the next few years could be crucial in shaping the architecture of the Internet.

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