04/25/96 - 08:11 AM ET - Click reload often for latest version Parts critical in survival of the fastest NEW YORK - This is a story about waiting. It's about computer users who are sick of waiting for Internet data to trickle in to their personal computers via their telephone modems. It's about cable companies that can't wait to offer a cure" cable modems - boxes that connect television cable wires to PCs to transmit information hundreds of times faster than phone modems can. And, most of all, this is a story about Wall Street investors and bankers who are growing impatient listening to hype about cable modems. Their ultimatum to cable companies: Prove by year's end that there's a real business here, or investment capital will start to dry up. "The cable industry's credibility is on the line," says media analyst Tom Wolzein of Sanford C. Bernstein. "They've said they can make cable modems work. A lot of Wall Street is waiting to see if they can deliver." Cable companies - which generated about $26 billion in revenue last year - can't afford to lose Wall Street's support. they are paying billions to upgrade the aging wires and transmission facilities that map most of the country. They need lots of cash to keep that effort going. Investors, though, want to know that cable is still a good bet for the 21st century. that's an open question. With new competition from telephone and satellite companies eager to bring movies, sports events and TV shows into your home, the number of cable subscribers could fall to 61 million in the year 2005 from 64 million this year, according to a new forecast from Paul Kagan Associates. Cable companies' response: Don't worry. We can collect lots of revenue from new businesses, beginning with cable modem rentals and then moving to full-fledged telephone service. There's little doubt that the modem business is hot as consumers rush to connect to online services and the Internet. Earnings of modem maker U.S. Robotics beat all expectations Tuesday, and its stock soared 13 1/2 to $151. Yet even CEO Casey Cowell is worried about the advent of cable modems. "The cable modem marketplace is way in the future ... (But) in the rest of this decade, there's a great opportunity in cable modems, Cowell told CNBC on Tuesday. If the cable industry stumbles, other communications powers - particularly the phone companies - could move in for the kill. They are as eager as cable companies are to sell packages of video, telephone and high-speed computer services. It's widely believed that consumers will flock to the first companies that offer these bundled services at a reasonable price. "There is no greater strategic issue for the cable industry" than demonstrating that its modems will be a success, NBC Cable President Thomas Rogers told industry leaders this month. His company and Microsoft are counting on cable modems to offer PC users video news on demand culled from their upcoming all-news cable channel, MSNBC. Cable modems - in use in small tests - seem to have a lot going for them. They deliver TV-like video to your monitor. They transmit a photograph in less than a second, not the 8 minutes it takes today. You can flip pages on the Internet's World Wide Web as quickly as you zap TV channels. And unlike phone modems, which require the user to call in order to access information, cable modems are always on. Cable companies expect anywhere from 12 million to 17 million subscribers to shell out $20 to $45 a month for cable modems by the year 2005. But cable companies still have vexing problems to resolve before they can offer computer services to most consumers: Old wires. Coaxial cables are like huge water mains: They send a gusher of video and data to the home - much more than can fit through the old-fashioned copper wires that deliver most telephone service. That's why cable modems can be so much faster than phone modems. But more than 90% of all cable lines can send data only one way - from the cable company to the home. That means the PC user at home or in the office who wants to send electronic mail, videos, voice transmission or documents must still use a telephone modem. Cable companies are racing to upgrade their systems. But by the year 2001, only 40% of the country will be connected to a system that can handle two-way cable modems, says Casey Sheldon of cable modem maker Hewlett-Packard. Upgrading cable systems to handle two-way communications is difficult and expensive. Electrical interference - static created by anything from hair dryers to sunspots - gets amplified on communications from individual homes to the cable company. The cost to eliminate that noise can hit $1,500 per mile of cable. Privacy. Communications over cable lines aren't as private as they are on phone wires. "Cable is shared," says David Fellows, Continental Cablevision's senior vice president for engineering and technology. That makes cable modem technology cheap but easy to eavesdrop on. "A determined spy could rent the first house out of the (cable company's transmission site) and look at everything," he says. Messages can be encrypted to keep them private, but there's no industry consensus on how that should be done. No standards. Cable modems from different companies - such as Motorola, Hewlett-Packard and LANCity - don't communicate with each other. So cable modems still can't be built into new computers the way telephone modems are today. That limits the ability of PC owners to use their computers away from home. To speed the development of cable modems, the industry's Cable-Labs research operation plans to recommend a single set of standards by year's end. Market uncertainty. Nobody knows for sure just how speedy cable modems will be when they become available to thousands of PC users. Since cable lines are shared, transmissions to any one household slow down considerably if lots of people go on line at the same time. Supporters also assume that lots of PC users will sign up for cable modem service and keep paying those monthly bills for a long time. But NBC's Rogers observes that "there is not a pricing model that anyone can point to with any kind of certainty." In the meantime, cable companies are frustrated by delays in introducing the technology: @Home, the first online service designed for cable modems, delayed its launch date from February to sometime later this year. And then last month, Intel abandoned its plans to manufacture cable modems. "Everything has gotten pushed back to anything from six to 18 months," says analyst Larry Gerbrandt of Paul Kagan Associates. Delays hurt because other industries also are hurrying to perfect and sell high-speed computer services. Satellite and microwave companies say they can broadcast Internet data to PC users faster and cheaper than they get it today. And phone companies are testing and tweaking several different methods to offer much speedier communications over their phone lines. "You're going to find the telephone industry moving ahead with blistering speed," says Jerry Parrick, president of U.S. West's !NTERPRISE data division. "This will not be a runaway by either side." Cable companies say they still have the lead. Comcast will have cable modems commercially available in all its major markets by the end of next year, says Steven Craddock, vice president of New Media Development. This year, Comcast will begin signing cable modem customers around Baltimore. Telecommunications Inc. expects to offer the service around San Francisco, Chicago and Hartford, Conn., this year. Time Warner says it will begin this summer in the Akron-Canton, Ohio, area and in San Diego. Cable companies can't afford many more delays. "I'm not concerned at this point," Wolzein says. "But if you get down to October, November and December, and things are still slipping, then you get concerned." By David Lieberman, USA TODAY