Dial-Up Ain't Dead

Fighting the Broadband Tide

The real question about analog modems is how eager vendors are about pushing the envelope for their products. All agree that the profit potential is far greater with broadband alternatives.

Although modems are commonly priced at up to $150, cutthroat competition has often driven price tags down to a mere $10. Profit margins have been abysmal, and that has devastated many vendors.

Modem pioneer Hayes folded a year ago. In March, leading modem maker 3Com yanked the cord on its dial-up modem division, selling the business to Accton Technology of Taiwan and NatSteel Electronics of Singapore. (3Com will retain a minority stake in a joint venture with the two.)

This profit meltdown drove Conexant Systems, like many other suppliers, to crunch down its modem R&D budgets, says Matt Rhodes, senior vice president and general manager of the personal computing division. "Even if you could quadruple the speed of an analog modem, who cares when cable can make even that look slow?" Rhodes asks.

New Roles

Experts do expect dial-up modems to take on new roles.

First, modems will get better at handling faxes. Look for the International Telecommunications Union's V.34 fax standard to be integrated in modems this year. This standard is designed to more than double fax transmission speeds. (Today most fax modems work at 14.4 kbps; V.34 brings that up to 33.6 kbps.)

Dial-up modems also will be customized for handling voice calls over the Net. For example, leading Internet telephony firm Net2Phone has optimized a modem called a Yap Jack exclusively for voice-over-IP telephone calls (see "Net2Phone Gets You Yapping Online").

Additionally, "the market potential is phenomenal" for modems embedded in Internet appliances, says Paul Kraska, product marketing manager for Multi-Tech Systems. Dirt-cheap modems will wire everything from vending machines to household electrical meters.

Tortoise and the Hare

Modems will remain a fixture in most Internet-connected homes. GartnerGroup estimates that 55 percent of U.S. home users will still dial up to connect to the Net in 2004. That's not even counting the broadband surfers that rely on dial-up Net access for their notebook computers.

"I don't see the advent of high-speed Internet connections as being a death knell for the analog modem anytime soon," says IDC's Baldwin. "But you can bet, one day a 56-kbps modem will be in the Smithsonian."

That day just keeps getting pushed back.