Verizon offers cheaper broadband when packaged with local and long-distance phone service. Oceanic offers lower rates for RoadRunner high-speed Internet when packaged with digital cable television.

For customers, the competition means lower prices and the convenience of paying for multiple services on one bill.

But packaging is also a way for the two companies, which represent the dominant broadband providers in Hawai'i, to sign up customers for more services so they're less likely to switch to another service. Broadband users are particularly attractive because they typically have higher education and income levels.

"Each side wants to lock in customers," said Gary Arlen, editor of Telecommunications Reports' Online Census, who compiles a quarterly count of Internet users. "Obviously, the more services you have, the more likely you are to keep customers."

Nationally, for the quarter ending in June, cable was the service of choice for 15.6 percent of the nation's 78.3 million Internet users, while about 10.9 percent accessed the Web via a DSL connection.

In Hawai'i, Oceanic's Road Runner dominates Verizon as the top broadband Internet provider, although neither company would provide comparable subscriber numbers.

Oceanic will say that about 27 percent or 104,760 of its 388,000 cable customers subscribe to Road Runner. Verizon Hawaii would not disclose how many local DSL subscribers it serves.

"Always on" Internet services allow for faster downloading of online content such as music and videos. However, most homes still log on to the Internet through cheaper, slower dial-ups.

Oceanic and Verizon intend to drive up adoption of broadband, which has not grown in use as much as they had hoped.

An estimated 25 percent to 30 percent of customers nationwide with Internet access have high-speed connections. But significant increases could help revive the ailing Internet and telecommunications industries.

Prices drop

The battle between Verizon and Oceanic heated up in May when Verizon cut its Digital Subscriber Line prices nationwide to $29.95 a month when bundled with local and long-distance service and $34.95 when purchased as a stand-alone service.

Verizon also bundles the service with Microsoft Corp.'s MSN 8.0 software, which provides online chat and messaging as well as parental controls and virus protection.

Since March, the number of Verizon DSL subscribers has grown by 100,000 to 1.9 million lines nationwide, primarily as more people gave up slower dial-up services, said Verizon Hawaii spokeswoman Ann Nishida.

"Verizon's DSL price change was designed for mass market appeal," she said. "We wanted to broaden DSL's appeal to the average person."

While Oceanic has not lowered rates for its $44.95-a-month Road Runner service, it plans to advertise a Surf Pak package soon that bundles broadband access with digital cable for $79.95 a month — a $10.95 saving over what it would cost if each were to be purchased separately.

The discount won't be available for customers already subscribing to both services, a strategy that could draw dial-up and DSL users. Oceanic also regularly runs promotions offering an introductory rate of 50 percent off for three months of Road Runner.

Alan Pollock, Oceanic's vice president of marketing, said he doesn't know if the Surf Pak package is so much a response to Verizon's pricing "as the whole marketplace."

The broadband providers aren't just competing with each other, but also with dial-up Internet providers such as NetZero, which recently cut monthly rates to as low as $9.95.

So far, Arlen said, Verizon's aggressive pricing hasn't significantly shifted the balance away from cable, which is the leader in home broadband services.

Pollock likened the strategy of bundling broadband services to the way banks build loyalty among customers, providing more than just banking services.

"So the phone companies and the cable companies are all looking to make our customers more loyal," he said. "Now we have a more holistic view. How can we better serve the customer and what better products can we offer them?"

Besides serving as Verizon's answer in the broadband market, DSL is a means to offset losses caused by customers abandoning phone lines in favor of cable or canceling landline phones in favor of wireless phones.

As many as 7.5 million Americans may have chucked their landlines in favor of cell phones only, according to industry estimates. Cell phones amount to about 43 percent of all U.S. phones, according to the International Telecommunication Union.

But DSL also is part of Verizon's defense against the cable industry, which plans to eventually roll out telephone services, Arlen said.

Telephone companies foresee countering with their own video services and by offering the convenience of seamless high-speed Internet connectivity whether customers are at home or on the road.

Internet dispensable

One problem for both Oceanic and Verizon is that the number of people logging on to the Internet at high speeds is still relatively small, and in some cases people are dropping the service.

Despite a rise in Internet availability and speeds, along with falling prices, 42 percent of Americans say they don't use the Internet, according to a Pew Internet & American Life Project survey sponsored by the Washington-based Pew Research Center for the People and the Press.

Fully 17 percent of these nonusers are online dropouts — people who dropped Internet service.

Some people are rejecting the Internet because they fear fraud or loss of privacy or can't find compelling content online. Some are dropping broadband because they can no longer afford it or because of a move, Pollock said.

"The growth has slowed down because what's happening is we're still seeing as many new customers, but what's happening across the country is more people are canceling," he said. "It could be a reflection of the economy.

"To this day, people look at high-speed as a luxury item as compared to a necessity."

Though it can be comparable to cable in terms of speed, DSL service is limited to homes within a certain distance from a telephone switching station. In addition, the rollout of DSL was hampered early on by significant service quality issues.

Those issues have been largely overcome, company officials say. Tim Heacox of Kailua said he subscribes to DSL through LavaNet Inc. because of concerns about cable service reliability and because DSL offers dedicated speeds. Cable speeds can vary, depending on use by nearby subscribers.

Heacox said he has come to rely on his Web access.

"I can live without my TV for a while, but without cable and the Internet? That's too much."

Mac user Doug Frick of Makaha said he's sticking with RoadRunner because it offers higher speeds and has "the best throughput-to-cost ratio."

Nu'uanu resident Barry Zane said he cut his phone and Internet service bills by about $40 a month through Verizon's DSL and phone service bundle. However, the decision to go with DSL came down to a desire for reliable speeds.

"If I was going to be paying more for higher speed, I did not want to be bogged down at any time," he said.

Regardless of price, users aren't likely to switch broadband providers unless they experience severe problems.

"Inertia is a pretty big thing to overcome," Zane said.

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.

U.S. survey finds widest use in Honolulu

If a study released last week is any indication, Honolulu Internet users may be ahead of the rest of the nation in logging on to the Web, especially at high speeds.

Honolulu was the top-ranked broadband market in the United States with 40 percent of adults, or 364,000 people, accessing the Internet at home via a broadband connection within the past 30 days, New York-based Scarborough Research said. The U.S. average was 19 percent.

According to the survey of 2,001 Honolulu-area residents, 51 percent had a dial-up Internet connection, 34 percent used cable and 6 percent accessed the Web via DSL.

"I think the geographic isolation of the marketplace makes people there more dependent on the Internet, and because they're more dependent ... they use a broadband connection," explained Gary Meo, a Scarborough vice president.