Cost concerns behind modem pact

A tentative agreement reached yesterday on a standard for 56-kbps modems may have come about because of increasing financial pressures on vendors and modem chipset makers.

Fortunately, consumers won't be forced to choose between competing standards anymore.

A concern that has cast a pall over the 56-kbps modem market is the potential inability to use a 56-kbps modem with an Internet service provider because the provider does not support one of the two competing standards. Consequently, a number of vendors have suffered poor financial results.

Vendors and observers report that a tentative agreement has been reached on which technology will be used in 56-kbps modems. The accord was reached at an industry association meeting in Orlando, Florida.

The agreement should bring much of the jockeying to an end by modem makers, who were trying to get significant portions of their technologies included in the standard in order to increase royalty payments from future sales of the standard-based modems. As it stands, Rockwell (ROK), 3Com (COMS) and Motorola (MOT), among others, decided that the long-term harm to the industry from the absence of a standard outweighed individual financial concerns, according to one industry analyst.

The upshot is that a preliminary, or "determined," standard for 56-kbps modems is likely to be decided at the January meeting of the International Telecommunications Union. A determined standard is the step required before a final official standard can be issued.

All major modem manufacturers have been offering modems that can deliver data at 56 kbps, or about twice the speed of widely used 28.8-kbps modems. But without any technology standard, modems using U.S. Robotics' x2 technology don't interoperate with modems based on Rockwell and Lucent's (LU) K56flex modem technology. The agreement sets the stage for vendors to release modems that can work together.

"Given the aggressive vendors involved, prestandard 'V.pcm' modems will likely be available very quickly after the end of the ITU meeting in February," according to Ken Krechmer, editor of Communications Standards Review in an email to CNET'S NEWS.COM. "V.pcm" is the name of the standard for 56-kbps modems.

Modem makers are likely to be pleased with the agreement, which should help sales of modems. "We're very excited about this decision and believe that the ratification of a worldwide standard will end the market fragmentation that has until now hampered 56-kbps modem adoption rates," said Vijay Parikh, vice president and general manager for Rockwell's personal computing division, in a statement.

Parikh added that current K56flex-based modems will be upgradable to the eventual standard. Even if consumers don't upgrade their modems, they will still work with ISPs that use K56flex-based equipment, he noted.

3Com may benefit the most from the standards process. Not only did a significant amount of its technology end up in the V.pcm standard that will be presented to the ITU, but also the standards should help modem sales significantly since its U.S. Robotics unit is the leading modem brand in the retail marketplace.

In April, U.S. Robotics had to halt shipments of modems for a significant period of time in order to reduce inventory at retailers, according to documents filed with the Securities Exchange Commission. Recently, 3Com said that it has reduced the inventory level held by channel partners and revised its inventory practices, moves which will impact its second-quarter 1998 earnings. The company now hopes that a standard will help offset the negative charges.

"Our feeling is that we will be shipping standards-based modems during the first quarter of 1998," said Neil Clemmons, vice president of marketing for 3Com's personal communications division. He added that 3Com expects all standards-based modems to be able to dial in to ISPs with either x2 or V.pcm technology in order to prevent disruption to ISPs service rollout plans.