Bill Garrett has a simple mission: Knock cable operators off the top of Broadband Mountain. "We want to offer all the services consumers want," Verizon’s director of broadband services says. "You need enough bandwidth coming into the home to provide all of those services simultaneously." While the bandwidth battle has historically favored MSOs’ faster cable-modem wires over telcos’ digital subscriber lines, Verizon and AT&T’s deployment of fiber networks with 100 Mbps mojo is changing the balance of power. "Cable has a capacity issue that it’s going to have to work through," insists Garrett. What this drag-strip trash talk really means is that broadband competitors will eventually reach virtual speed parity and, like the superpowers of the Cold War, could arrive at a stalemate. As a result, providing exclusive content and applications to broadband customers might provide the crucial competitive edge. "High-speed data pipes are quickly being commoditized," says Tanya VanCourt, VP and general manager of ESPN Broadband and Interactive Television. "Providers have to figure out how to differentiate themselves and their relevance to their audience." On the operators’ side of the speed race, DOCSIS 2.0 specs max out at around 30 Mbps, so CableLabs is working furiously on DOCSIS 3.0, which could allow MSOs to exceed even 100 Mbps using "channel bonding" technology. Channel bonding is a way to use several 6 MHz channels for broadband data simultaneously, thereby increasing overall bit rates. "There’s mind-share with the consumer about speed," notes Steve Cook, Time Warner Cable’s VP and general manager, product management, for high-speed online and Road Runner. "But we have the technology to be able to match [the telcos’] speeds." In May, Verizon announced that it would raise speeds on its FiOS premium broadband tier from 15 Mbps to 20 Mbps (5 Mbps upstream) in New York, New Jersey and Connecticut—without raising the price. In Reston, Va., Comcast offers broadband tiers ranging from 6-16 Mbps, which just barely one-ups Verizon’s speeds of 5-15 Mbps in that locale. "Our plan is to continue to hold that superiority position," says Mitch Bolling, Comcast’s general manager, online business. In nearby Herndon, Va., incumbent MSO Cox has also made sure to match or exceed Verizon’s offerings. "We look at it as being in the driver’s seat," says Cox Northern Virginia’s Alex Horwitz. "If anything, Verizon is trying to catch up with Cox." A CASH COW TO DEFEND Who’s in the driver’s seat may be in the eye of the beholder, but here’s a fact: MSOs are raking in the broadband revenue. In fact, MSOs will pull in $13.1 billion this year from high-speed data, while the telcos will make $7.2 billion, Kagan Research estimates. Comcast, for example, posted revenue for high-speed data of $4 billion in 2005 and grew its broadband subscriber base from 7 million to 8.5 million, year-over-year. For Q1 2006, it reported $1.1 billion in broadband revenue compared to $925 million in Q1 2005. Time Warner Cable, meanwhile, reported slightly more than $2.1 billion in 2005 high-speed data revenue compared to nearly $1.8 billion in 2004, growing its residential broadband subscriber base some 23% to 4.8 million. Privately held Cox, which no longer provides financial data, reported 3.1 million high-speed data customers at the end of 2005, compared with 2.6 million in 2004. Of course, telcos are seeing good growth, too. In Q1 2006, AT&T’s DSL lines increased to 7.4 million from 5.6 million year-over-year, which helped drive DSL revenue up by $103 million in the same quarter. (An AT&T official declined to break out total DSL revenue, however.) Verizon also doesn’t disclose revenue breakdowns for DSL and FiOS-related broadband services, but the telco reported 5.7 million DSL/FiOS broadband customers in Q1 2006 compared to 5.1 million at year-end 2005. In fact, its broadband subscriber base is up 47.1% since Q1 2005. And as the battle for broadband market share rages, MSOs are increasingly thinking beyond the bit to beat their telco foes. At the same time, they’re increasingly tying higher speeds to the experience. CONTENT BUILT FOR SPEED "The problem is that no one wins in the battle of speed," says Time Warner Cable’s Cook, noting that cable operators should instead focus on providing "the compelling application that shows [consumers] why they need that speed. Those are areas in which we have strength." Says Comcast chief marketing officer Marvin Davis: "If you look at more of the things that a lot of people are doing online, it’s a lot of downloading of video and music," he says. "It’s a better experience with speed…Then there’s all the other content that’s out there: photo shows, video mail…all of that continues to expand the things that people need speed for." Marketing speed alone amounts to "the technology coming before the application," says Mediacom SVP Mike Rahimi. "We’re filling our portal with applications that require a big pipe, whether it’s gaming or video streaming," he says. "We’re putting in as much of that as we can—both on our home page as well as in our marketing materials. We’re trying to make the service as robust as possible beyond the bidding war of `My speed is bigger than yours.’" Cable operators, however, are still feeling their way on how to do that. Patricia Gottesman, Cablevision Systems’ EVP, product management and marketing, says raw speed still sells but adds that MSOs want to find new ways to woo customers. "New services that build on cable’s broadband success will be natural additions, whether they focus on better content solutions, personalized applications or the ultimate fusion of online and voice," she says. CABLE INVADES THE GAME SPACE In fact, cable operators are already forging content alliances and creating concepts that capitalize on broadband speeds. In May, for example, Comcast partnered with IGN Entertainment to launch Game Invasion, a new broadband gaming service designed to drive gamers to its premium 8 Mbps broadband tier. In October, Comcast partnered with programmer OLN and the National Hockey League to stream live games over broadband. A month later, Cox announced Premium Access Pass, which offers subscription-based content from its "Best of the Web Zone" and "Sports Zone" packages of broadband video and other content. Time Warner Cable, meanwhile, offers broadband content from dozens of cable programmers through its Road Runner portal and in partnership with affiliated America Online. At the same time, MSOs’ content strategies are evolving. "We’re still in the testing phase in terms of content business models," says Cook. Companies in the Web video space that would like to partner with MSOs and telcos are anxious to explore new models. As Internet-based services like Google, iTunes, MySpace and YouTube continue to gain customers with multimedia content, some Internet players wonder whether MSOs and telcos will start their own similar services to compete—or whether they might strike new partnerships with successful Internet content firms. "Will you see the cable companies and telcos at the level of the application space?" asks Greg Kostello, CEO of music-oriented video site Vmix.com. "It’s unclear right now. Their portals aren’t very visited, and they really haven’t figured out that consumer offering." Content partnerships, however, are moving forward rapidly: AT&T is giving its broadband customers access to Akimbo’s library of more than 10,000 videos and to TotalVid’s more than 2,600 entertainment and instructional videos. Recently it inked a pact with Starz Entertainment Group-owned Vongo to offer its movie-download subscription service to AT&T broadband customers. In May, it partnered with mobile content aggregator MobiTV to deliver video through nearly 7,000 AT&T Wi-Fi hot spots across the U.S. "Today’s consumers are looking for readily available video and entertainment-related content to enhance their broadband experience," AT&T’s Sarah Baker says. PROGRAMMERS AS PARTNERS—AND COMPETITORS And while MSOs and telcos worry that content providers could eventually make an end-run around them, at least some traditional cable programmers aren’t anxious for such independence. "We could go over the top," says ESPN’s VanCourt, "but our affiliate partnerships have worked out well for us. We prefer to partner." ESPN, however, isn’t one to limit its options. This month, it launched an integrated online multimedia player that consolidates a bevy of broadband video products, including video streaming applications ESPN Motion, ESPN360 and the network’s online pay-per-view offerings. Users will also be able to search ESPN’s entire online video catalog by keyword and sort results. Soon, the multimedia player will allow fans to play ESPN’s growing stable of digital audio content, including more than 15 individual podcasts and the live, 24/7 stream of ESPN Radio programming. VanCourt says broadband access providers should start promoting the availability of such content rather than more commoditized perks like spam protection and pop-up blockers. "[Content] gives consumers a reason to choose that high-speed connection over another one," she says. VanCourt predicts that exclusive broadband content deals could be on the horizon. "There are a number of different business models out there, and people are trying to figure it out," she says. "If history is any indication…there might be some exclusive deals done." She says one historical example in the multichannel world is DirecTV’s NFL Sunday Ticket, which gives subscribers exclusive live access to all NFL football games across the country. Service providers are also looking at content integration across the Web and other channels. Verizon’s Garrett, for example, notes that FiOS’ video-on-demand offerings are IP-based and use the broadband data pipe rather than the QAM-based video portion of the network. "That way, it’s all seamlessly integrated," he says. "This would allow us to send the same streams to a cell phone or other device without making any changes." Verizon also plans more integration of Internet and video content in its FiOS program guides. "It will show live content we’re bringing in over the Internet and integrating with the video experience as well," he says. MSOs can perform many of the same tricks using IP Multimedia Subsystem (IMS) technology or through other network tweaks. But there’s always pressure to be first to market. "It’s how do we differentiate?" says Jim Reed, Cox’s director of high-speed Internet marketing, who adds that the industry’s PacketCable Multimedia initiative should allow MSOs to better optimize broadband for video even as the telcos move forward with fiber-heavy networks. "We’re looking at taking bandwidth to the next level," he says. If not, the cable industry can bet someone else will. Broadband Breakdown Cable’s broadband revenue is growing exponentially. But telcos are also posting good numbers. As competition heats up, the next few years could bring new business models and force content innovation. Broadband’s Past Latest Developments How Competition Will Change Future Consumer Expectations What Cable Can Do to Remain Ahead of Telcos

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