As the number of entrants (not only hardware but also software) into the residential gateway market grows, the key question remains as to when service providers will commence significant deployment of broadband residential gateways, that is gateways with an integrated broadband modem.

Until now, broadband access has not proven to be a profitable service by itself, and service providers fully realize that they need to deliver additional services over the "fat pipe" to gain an acceptable return on their extensive infrastructure investments. However, there are a number of considerations that service providers must take into account before they commit themselves unequivocally to the path of rolling out residential gateways.

In this article I do not want to repeat Allied Business Intelligence's (ABI) definition of a residential gateway or how we segment them into different categories. This has been covered in a previous article:

http://www.hometoys.com/htinews/feb00/articles/allied/allied.htm

Service Provider Considerations

Service providers are juggling various issues before commencing the deployment of residential gateways:

• Hardware Cost - Regardless of what some gateway vendors say, service providers are very weary about the cost of residential gateways compared to the basic broadband modems being deployed today. For example, with digital subscriber line (DSL) modems now being sold for less than $150, and in some cases less than $100, service providers do not want to deploy a residential gateway unless it truly helps them deliver additional services, or if the consumer is willing to pay at least part of the cost. The latter could be either in the form of an up-front hardware charge or as an additional service charge. In general, service providers are looking for sub-$400 solutions, and definitely no more than $500 for very full-featured gateways.
  
• Truck Roll Cost - The impact on the truck roll cost is also an issue, as typically the provisioning and installation costs are higher than the customer premises equipment (CPE) costs. Therefore, the onus is on gateway vendors to demonstrate that their offerings will not be significantly more complex to deploy than basic broadband CPE. In some cases, such as with cable residential gateways, the truck roll cost of residential gateways could actually be lower since "no new wires" home networking technologies may eliminate the need for rewiring.
  
• Drop-Shipping - In the past year most broadband service providers have moved in a concerted way to drop-shipping broadband modems to customers. The truck rolls are increasingly becoming limited to those people who need special rewiring or have problems with self installation. This trend has allowed service providers to ramp up their broadband deployments and do so far more cost-effectively. It is therefore now expected that residential gateways also need to be consumer-installable, if not initially then definitely in the medium term. This has created an extra pressure on residential gateway vendors who now must ensure that their solutions really do provide a rapid migration path to customer self installation.
  
• Maintenance and Support Cost - Service providers have nightmares when they think of the number of support calls from consumers that home networking will induce. Therefore, it is critical that gateways have sophisticated remote management and diagnostic tools. This requires the gateway vendor to not only build this intelligence into the gateway itself, but to also provide backend platform management software.
  
• Readiness of Enhanced Services - Everybody talks about multi-service residential gateways that go beyond data to receive voice and streaming entertainment services. However, until service providers are prepared to deliver these enhanced services, they will have little tangible incentive to deploy multi-service gateways. The best illustration of this has been the non-appearance of voice over DSL (VoDSL) services, which are really voice over asynchronous transfer mode (VoATM). The telcos have had issues with the central office gateways, which has caused delays in the rollout of VoDSL.
  
• Competitive Pressures - Much of the original impetus behind residential gateways was the idea that competitive local exchange carriers (CLEC) would aggressively compete against the regional Bell operating companies (RBOC) by delivering bundled services.This would in turn force the RBOCs to respond by rolling out their own gateways as competitive measure. Alas, only a handful of CLECs are likely to survive the current Darwinian purge. However, the role of competition in forcing service providers to roll out new services and equipment should not be underestimated.
  
• Home Networking Confusion - Service providers are only now coming to terms with the plethora of home networking protocols. As they decide which of these they would like to have integrated into the gateways, and how these protocols interface to their access networks, they will become more willing to deploy gateways.
  
• Economic Climate - With the overall economy weak and service providers cutting capital spending, there is a conservative bias at the moment. This may lead to a couple of quarters' slip in the rollout of gateways.

ABI Looks Ahead

There is no doubt that the cable and DSL residential gateway segments have been evolving differently from each other. Much of the initial activity and innovation was focused in the DSL realm. This is no longer the case, with cable operators embracing home networking, especially through the CableLabs CableHome effort.

ABI has recently completed an update to its original residential gateway report, and we are forecasting that worldwide residential gateway hardware revenues will rise from $267 million in 2000 to $7.1 billion by 2006. The majority of this will be accounted for by DSL and cable residential gateways.

DSL residential gateways will spend the bulk of 2001 in trials with the RBOCs. Based on the request for proposals (RFP) that DSL gateway vendors are getting, 2002 will see significant deployment commence, particularly as VoDSL services become ready for rollout. Cable residential gateways will probably begin ramping up toward the end of 2002, as CableHome specifications are released and as cable equipment vendors integrate home networking into their cable modem and digital set-top box offerings.

Ultimately, even though the RBOCs are no longer threatened by CLECs, and cable operators are not really prone to competition from cable overbuilders, there is still fairly direct competition between telcos and cable operators.

Telcos would like to get a significant share of the new data revenues, provide additional voice lines through VoDSL and capture some of the entertainment and content revenues from cable operators. Conversely, the cable operators would like to take a significant portion of the new data revenues, enhance their video offerings and capture some of the telephony revenues from telcos.

The broadband residential gateway will be the choice of weapon for both sides.

Allied Business Intelligence Inc is an Oyster Bay, NY-based technology research think tank specializing in communications and emerging technology markets. ABI publishes strategic research on the broadband, wireless, electronics, networking and energy industries. Details of these studies can be found at www.alliedworld.com , or call 516-624-3113 for more information.