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The Honolulu Advertiser
Posted on: Tuesday, May 8, 2001

Home Internet access slips 0.3 percent

USA Today

SAN FRANCISCO — The breakneck growth of the Internet, which gave birth to the New Economy and vast Wall Street riches, is tapering.

The number of U.S. households with Internet access dipped 0.3 percent to 68.5 million in the first quarter of this year, says Telecommunications Reports International. It was the first time in 21 years that the number dipped, the group says.

The report blamed most of the drop on the death of several free Internet service providers (ISP). But it also suggests that "the market is close to its maturity level," says Amy Fickling, managing editor of the report. "Growth in every category slowed."

Different groups measure Internet use differently. But Jupiter Media Metrix and Nielsen//NetRatings, two of the biggest researchers, also say growth in Internet use at home has slowed in recent months.

Factors behind the first-time drop:

• Dwindling free ISPs. A year ago, freebie ISPs were expanding and posing a threat to fee-based services like America Online. Today, several free ISPs are toast. Late last year, 1stUp.net, FreeLane and others went belly-up. It is unclear, however, how many formerly free ISP users are migrating to AOL and others. In the first quarter, the number of U.S. households with free ISPs dropped 19.4 percent to 10.3 million, the report says.

• Chaotic DSL market. The number of households with high-speed, or digital subscriber (DSL), lines grew 2 percent in the quarter to 2.4 million. But in the previous quarter, the number had soared 86 percent. The group attributed the slowdown to a "chaotic" market, hampered by slow installations and higher prices. Plus, DSL provider NorthPoint Communications closed and others ran into money problems.

Still, the number of households paying for Internet access rose 8 percent, to 49.6 million, and cable-modem use climbed 18 percent, to 4.9 million, the report says. What's more, consumers are spending 10.3 hours a month online, Nielsen/NetRatings says. That's up from about 8.7 hours in December.

"The more important question is: Are those who are wired using the Net more fully?" says Lanny Baker of Salomon Smith Barney.

According to the biggest online retailer, Amazon.com, they are. It says customers spent, on average, $135 in the first quarter. That compares with $134 in the previous quarter and $117 a year ago. "We're more interested in wallet share than acquiring more customers," says Amazon spokeswoman Patty Smith.