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The Honolulu Advertiser
Posted on: Tuesday, August 12, 2003

DSL fights back

By A.S. Berman
Gannett News Service

Outgunned by cable TV operators in the battle for high-speed Internet customers, regional telephone companies have cut prices on their digital subscriber line, or DSL, services.

While these savings have enticed many to sign up, experts say a majority of Internet users are likely to stick with their dial-up accounts, regardless of price, until they feel they are missing out on content available only through broadband.

Nearly 39 million people access the Web with some form of high-speed Net service, according to a recent report by Internet analyst Nieslen/NetRatings. That's a jump of 50 percent over last year's 26 million users.

With cable TV available to 90 percent of American homes, about 21 million people use cable modems to access the Web, a recent Pew Internet & American Life Project study found.

Technological limitations mean DSL is available to a much smaller segment of the population and is used by only about 9 million people. Others get broadband from satellite, dedicated phone lines and other solutions.

That's why DSL providers, looking to woo some of the country's estimated 69.6 million dial-up users, have cut their monthly service fees by $15 to $20 over the last few months.

How low can they go?

"Broadband is a scale business," says SBC Communications spokesman Michael Coe. "The more subscribers you get, the easier it is to make money." SBC serves 13 states including Texas and California.

In May, SBC cut its $49.95 monthly DSL charge to $29.95, hoping to further boost already-record broadband sales. Standard SBC dial-up service runs $15.95 a month.

The last five business quarters have seen new subscriber numbers jump from 183,000 in the first quarter of 2002 to 270,000 in the first quarter of 2003, Coe says.

Around the same time, Verizon, which serves 29 states and Washington, D.C., lowered the monthly price of its DSL service from $49.95 to $34.95, says spokeswoman Rose Kirk. For subscribers to its local and long-distance package, the DSL price drops to $29.95.

Is a lower price enough?

Discounted pricing may be enticing record numbers to sign up for DSL now, but surveys suggest dial-up users will remain firmly in the majority.

"It's getting tougher to sell broadband because the early (technology) adopters who really want it have already gotten the service," says John Horrigan, senior research specialist at the Pew Internet & American Life Project.

Others, such as Internet analyst Robyn Greenspan, say the industry has done a poor job of telling consumers why they should want broadband in the first place.

"A lot of dial-up users don't think they need broadband at this point," says Greenspan, managing editor at CyberAtlas (www.cyberatlas.com), an online source for Internet-related statistics.

Greenspan cites a June survey by marketing-research firm Ipsos-Insight that found:

  • At $40 a month, about 3 percent of American dial-up users would switch to DSL or cable.
  • At $30, 10 percent would switch to DSL; 9 percent to cable.
  • At $20, about 20 percent of dial-up users would switch to either DSL or cable.

Which leaves 80 percent unwilling to pay even a few dollars more for broadband than they do for their present service.

"It's going to be more streaming video and music downloading that's really going to dictate the switch — far more than the price," Greenspan says.

To further lure consumers, several DSL providers have formed partnerships with Internet portals to provide special content and features for their subscribers.

Verizon bundled MSN 8 with its DSL service when it dropped its price in May. SBC offers content provided by Yahoo!.

Another incentive both companies offer is in-home wireless Net access, or Wi-Fi, which lets users surf the Web or print to a printer from anywhere in their home. SBC's Wi-Fi equipment is $50. The company is selling about 2,000 units a day, says spokesman Michael Coe.

Verizon's Wi-Fi equipment is $100, spokeswoman Rose Kirk says. Both companies also allow DSL subscribers to access Wi-Fi networks at various locations, including hotels and within close proximity to specially equipped pay phones, at no additional charge.

Implications for cable

So what are cable companies doing to compete with this DSL sales blitz?

Not very much, judging by today's cable Net access rates.

Comcast, which serves 41 states, charges cable TV subscribers $42.95 a month; $57.95 for non-subscribers. The modem is another $3 a month, or can be purchased for $139.

High-speed service from Cox Communications runs $39.95 a month for cable TV subscribers; $49.95 for nonsubscribers. Modems sell for $50 to $75.

With seven out of every 10 high-speed Internet customers using cable broadband, cable companies see no reason to try to undercut local DSL providers, says Joe Rooney, senior vice president of marketing for Cox.

"We definitely have a footprint advantage and that has helped cable get an early lead," Rooney says. The phone companies have "been losing the broadband race for several years now, and have finally woken up."