According to In-Stat/MDR’s "The Broadband CPE Big Three: Residential Gateway, Modem and SOHO Router Market Analysis" report (http://www.instat.com/catalog/pcatalogue.asp?ID=63), the broadband Customer Premise Equipment (CPE) market is evolving. Instead of modems comprising nearly 100 percent of the market, CPE is becoming a complete whole-home services market. As a result, the high-tech market-research firm says, residential gateways—with higher degrees of intelligence, network-management capabilities, and network bridging—will increase from 3 percent of the CPE market in 2003 to one-third of all devices shipped in 2007.

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"Most broadband service providers have developed or are developing a gateway strategy, allowing them to tier their services for those who want a richer set of services," said Mike Wolf, a principal analyst with In-Stat/MDR. "Over time we see this higher tier becoming the standard as the cost-curve allows, and as service providers see the gateway as a better way to continually offer all customers more broadband services."

The report also found that the cost of residential gateways, while still close to three times that of modems in mid-2003 from a bill of materials perspective, are close to what modems were in price when service providers started large-scale broadband rollouts in 1999 and 2000. The research firm estimates that the total broadband CPE market, which includes modems, residential gateways, and small office/home office (SOHO) routers, will be $5.1 billion in 2003.