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Homeward Bound (July 01, 2001)

Homeowners are more cautious these days when it comes to wiring their homes with high-speed cable. Yet, the residential-wiring sector can expect incremental long-term growth to 2005, making this whole business an experiment in patience.


July 1, 2001  


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What a difference a year makes. Although that is a well-worn clich, it proves true in the case of the telecommunications sector, which in 2000 seemed to be able to do no wrong — matching every bold quarterly prediction for profits with an even bolder one the next quarter.

Giants like Nortel Networks, Cisco Systems and JDS Uniphase, along with numerous smaller high-tech start-ups that dot the Canadian landscape, were furiously building routers, switches and gateways for the Internet economy. It seemed as if the economy would never slow down, and each new product would be met with enthusiasm from consumers, including homeowners. The general consensus among industry experts was: Homeowners should wire their homes with cable capable of delivering high-speed voice, data and video, or face driving in the slow lane on the Information Superhighway.

So what went wrong? Analysts are still trying to sort that out, but one plausible answer is ill-timing in the market. Not the stock market, but the consumer market — a far bigger and more capricious hub of competing forces. Still, one can find good news amidst the bleak stock market news. To wit, consumers still want to derive benefits from such technologies, but will wait patiently until the economy rebounds.

“The consumer market has slowed down since the fourth quarter of 2001, thereby affecting speed of adoption of high-speed residential broadband,” says Jeremy Depow, an analyst for Yankee Group in Canada, Brockville, ON. “The growth will be slower, but we do see home-networking applications growing.”

In short, consumers have less disposable income. But, as Depow puts it, “Home networking is one area that people would want to get into if they had more money to spend.”

As an increasing number of people continue to work from home, and add more computers to form networks, high-speed lines become preferable — if not necessary. The Yankee Group estimates that 800,000 digital subscriber lines (DSL) will operate in Canada by December 2001. In 2004, that figure will more than double to two million DSLs, which Depow says, “shows that the residential market is significant.”

WIRELESS OPPORTUNITIES

One cannot talk about residential networking without referring to wireless technologies. As to whether the greatest growth will be found in wired or wireless solutions, Depow says: “Cable is definitely there, but the greatest amount of opportunity is for wireless local-area networks (WLANs). “These wireless LANs are slightly expensive, but they’re coming down in price,” he says. “We’ll even see some fixed wireless broadband in homes.”

The economic situation is similar in the United States, yet south of the border it seems wired is the preferred way to go. “Home builders and consumers will always want a real broadband-capable backbone in the home, which is structured wiring,” says Kurt Scherf, a home networks analyst with market-research firm Parks Associates in Dallas, TX. “Wireless is great for mobility applications, but it has its limitations. Consumers will demand a wired solution for newly built homes.”

A number of recent studies from Parks Associates support this view. In a wide-ranging survey of 696 American home builders, 56 per cent said they were offering structured wiring. Part of the demand is attributed to cable companies working closer with builders and developers than telcos traditionally have. “The telcos are now trying to catch up,” Scherf notes. “And, according to our survey, if a builder has a choice, he will select a cable technology.”

Given the vagaries of the market, it is heartening that there are some faint rumblings of demand for wired technologies. Scherf says that in two or three years, consumers will have more information and be better at rating wired technologies. One clear outcome of such consumer decision-making power is that a residential building not wired with high-speed cable risks losing tenants.

That scenario is already taking place in the Southeast U.S., a highly competitive market for builders. Such competitiveness is particularly noticeable in the Atlanta area, a high-tech hub. “If they don’t have structured wiring in the building — and the one down the street does — they will be at a competitive disadvantage,” Scherf says.

The cost of high-speed wiring is linked to labour costs. Yet, as installation methods improve and become more efficient, the cost of installation will drop. It costs, on average, between US$1,500 and US$2,000 to wire each home, or between 50 cents and one dollar per square foot. Still, for most home buyers, cost will eventually become a non-issue, since the cost of wiring will become part of the home-buying package that is rolled in to a 25- or 30-year mortgage.

AN EYE ON STANDARDS

Still, many people are concerned about the economy. Thus, budget-conscious homeowners should, if they are unsure of the type of wiring needed, at least put in a pathway for the cabling system, thereby paving the way for future installation. “They can pull the wire at a later date, whether it is Category 5 or fiber-optic cable,” says Bob Jensen, chairman of Telecommunications Industry Association’s (TIA’s) residential cabling panel TR 42.2.

The panel, which met in June, examined the issues surrounding structured wiring for control systems for homes and condominiums. The working document it produced, Control Cabling Systems: Residential, has a clear mandate, Jensen points out. “We talked a lot about the flexibility of cable other than Category 5.”

The committee’s aim is to write a standard that would limit the types of cable that builders could use, while also keeping costs low enough for the homeowner. “We’re trying to move the industry to accepting a minimum amount of cable types,” says Jensen. “The idea is to have interoperability between manufacturers.”

For example, if a homeowner installs a home-entertainment system made by one manufacturer, and then decides to change or upgrade to a system made by another competing technology, the homeowner should not have to worry whether, say, the DVD player will work properly. “So, if you have set up speakers throughout the home, we want to ensure that the cabling will work with any system,” says Jensen, who works in product marketing at Fluke Networks in Austin, TX.

But as Jensen notes, the new standard does not necessarily force homeowners to always install Category 5 or 5e cable. “For home-entertainment systems, if you implement a standard like IEEE 1394B, you could use Category 5 cable, plastic optical fiber or glass optical fiber.” Such cable would only be installed if the homeowner wants the very best. But to drive a home-entertainment system, one-pair (32-strand) cable generally will do. “We’re talking about those types of specifications, rather than saying Category 5 or 5e for everything,” Jensen says. “We want to be reasonable with the type of cable that is really necessary in the home.”

As homeowners increase the number of computers, phone lines and entertainment systems in their homes, the need for residential gateways becomes more pronounced. In part because of competing standards, the industry has been slow to deliver a one-box gateway that would act much like a fuse box, Jensen says. “You’re seeing pieces of gateways, but they haven’t advanced to the point of taking in wireless services and controlling lighting systems.” (Please see sidebar, “Gateway to Possibilities”, on p. 15)

Yet the work done a few years ago in the area of education and standards is bearing fruit. Standards are slowly becoming clearer and flowing down to home builders, notes Bert Dekkema, president of Dekkema Developments in Unionville, ON, a suburb of Toronto. “I’ve noticed that more and more developer-builders are laying fiber-optic cable, especially in industrial subdivisions.”

In some cases, developers have bought the cable and have taken care of the installation and service, Dekkema says. “These developers are saying, ‘Drop off the cable and we’ll pick it up from here. It’s our cable.’ They’re trying to keep the customer base.” This practice describes bundling services like t
elephone, Internet, satellite and cable TV to homeowners, instead of leaving a lucrative revenue source solely to service providers. Land developers and some service integrators are forming companies to install such services in subdivisions of approximately 100 houses.

BUILDING INFRASTRUCTURE

Structured wiring in the home will become more common only after an infrastructure is built in Canadian communities, Dekkema says. “Once we have a full fiber-optic network operating in, say, Southern Ontario, we’ll start to see prices come down to the point that consumers will be enticed to take advantage of it.” That is, the cost should be so low that it’s barely noticeable.

He cites the example of cable TV providers. “Years ago, when cable TV companies were trying to entice homeowners away from rooftop antennas, they gave deals.” That being the case, in the foreseeable future, Dekkema says the majority of subdivision builders will start to include fiber optics because the consumer will demand it. But demand to date has been slow.

Telephone providers like Bell Canada, which wield tremendous clout on consumers, present an obstacle. “If you go fiber-optic, then you can’t provide the telephone service on Bell, which won’t accept that layout,” says Cuckoo Kochar, president of DCR Phoenix Homes in Kanata, ON, a high-tech community outside of Ottawa. Kochar is skeptical that the future lies in fiber-optic cable. “Five or six years from now, it seems that we’ll all be going wireless. Thus, it’s a huge risk to install fiber-optic cable, and so for the moment we’re going with basic (coaxial) cable.”

Yet that might soon change. Futureway Communications Inc. of Richmond Hill, ON, has offered to install fiber-optic cable at no cost in Phoenix’s high-priced homes. “If I can get Bell Canada to agree, then we’ll definitely go ahead with the project,” Kochar says.

Each home that Phoenix builds for two subdivisions in Kanata and in nearby Stittsville includes in its basic package a security system, an ExpressVu satellite dish with two decoders, a Nordx switching system and about seven audio-visual outlets, run on coaxial cable. The basic package is included in the home’s selling price. It costs Phoenix $2,500, although its retail value is an estimated $4,000. “We have this package deal with Bell, so we can get cheaper prices,” Kochar explains.

In 2000, the company sold about 450 homes that each went for about $300,000. In 2001, it expects to sell about 350 homes. Kochar says that the slowdown is welcome. Builders couldn’t keep up with demand, and delivery of homes was suffering. “What used to take four of five months has extended to 15 months.”

NET APPLIANCES

Last year, there was much speculation about home appliances like refrigerators and microwaves becoming Internet-enabled. Yet today, the idea of such Internet appliances may seem futuristic, if not somewhat faddish. As Depow puts it, “In the short-term, consumers will likely look for serious applications on which to spend their disposable income.” That includes home-management systems to control lighting and security. (Please see sidebar, “Under A Watchful Eye”, on p. 17)

Yet, some homeowners have spent money on preparing their homes for Internet appliances, Jensen points out. “I’ve visited homes where Category 5 cable travels to a refrigerator. They’re planning on that refrigerator becoming an Internet appliance.” But as Jensen and others concede, it will probably take a few years before such wired appliances become common — at least until the economy has been rolling on high gear for a couple of years.

The economy’s effect on consumer spending cannot be denied. And one cannot talk about residential networking without casting an eye on the fate of large telecom companies like Nortel, JDS Uniphase and Cisco as they regroup and re-examine marketing strategies over the next few years. Yankee Group’s Depow sums up what to expect: “There might not be as many telecom companies operating next year, but those that survive will be running more efficiently.”CS

Perry J. Greenbaum is a Montreal-based freelance business and technology writer. He can be reached at saltpub@sympatico.ca.

Gateway to Possibilities

If predictions hold true, all new homes in a few years will contain, as part of a home network, a residential gateway. In short, the control panel will become as much part of the home as a fuse box. Gateways are somewhat complex pieces of equipment, which operate much like a black box.

But consumers will not have to become network engineers to appreciate what gateways can do, says Kurt Scherf, a home networks analyst with Parks Associates in Dallas, TX. “Home owners can understand things like video on demand and streaming music and home security.”

Parks Associates estimates the residential-gateway market will reach annual revenues of US$3-billion by 2005. Cisco Systems has delayed introducing its version of a gateway, leaving the market open to many smaller, focused companies.


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