[IP] Los Angeles Times: Broadband Market Is About to Heat Up
http://www.latimes.com/business/la-fi-dsl17jun17.story
Broadband Market Is About to Heat Up
Phone companies offering DSL services are set to battle cable rivals
this summer.
By Jube Shiver Jr.
Times Staff Writer
June 17, 2004
This may be the summer of broadband.
As phone companies scuffle with cable providers to push high-speed
Internet service, former dial-up customers like Bill Rowe are getting
online faster and for less. The corporate buyer from Manchester, N.H.,
has his pick of three providers of so-called broadband access — at a
price that is half what it was five years ago.
"If you are going to be online at all, it really doesn't make any sense
to do dial-up at these prices," said Rowe, comparing his monthly $29.95
bill for digital subscriber lines, or DSL, service with the $23.90
America Online charges for dial-up Internet access.
After years of trailing the cable industry in offering broadband,
regional telephone companies led by Verizon Communications Inc. and SBC
Communications Inc. are gearing up for a summer showdown with cable
giants like Time Warner Inc., Comcast Corp. and Cox Communications Inc.
The regional phone companies are aggressively pitching their DSL
services by boosting speeds, adding services and dropping prices.
"All this new stuff is going to be coming over the summer, and
consumers are going to be the beneficiaries," said Judy Bersus, senior
vice president of marketing for Verizon, which plans to double the
fastest Internet access speeds available to its residential customers.
"When you think about broadband migration, it's going to be a long
battle. But I want to be winning more [of the market] than cable every
single day."
The regional phone companies seem to be off to a strong start.
In the first quarter, they added slightly more than 1 million broadband
lines, outpacing cable companies for the first time. In California, DSL
lines outnumber cable. Nationwide, though, DSL and the phone companies
offering it are a distant second, accounting for just more than
one-third of the 30 million broadband lines.
High-speed Internet access remains a relatively small piece of revenue
for phone and cable companies. But it's growing while traditional cable
and local phone services are flattening out — and even shrinking.
Broadband "is not providing great revenues for companies now, but it is
a good way to hold on to customers and upgrade them to other
applications that could become huge new revenue sources," said Patrick
Mahoney, an analyst at Yankee Group.
Historically, the phone companies did little to push DSL, a decade-old
technology that transmits data over regular copper telephone wires. The
service initially rivaled the cost of the dedicated lines big
corporations used to move massive amounts of electronic data quickly.
As recently as 2002, DSL was difficult to install, requiring most
customers to take a day off from work to wait for a phone company
technician.
The phone companies' enthusiasm for the service grew in recent years as
they lost lines in their traditional local phone business to
competitors such as AT&T Corp. and MCI Corp. — and even cable
companies. The cable industry provides local phone service to nearly 3
million households, according to the National Cable &
Telecommunications Assn.
Meanwhile, satellite television's growing popularity in the 1990s
forced the cable industry to sharpen its broadband focus. Cable TV
operators began to offer high-speed Internet access to make their video
service more attractive as a package deal. They also were spurred by
relaxed government regulations, which allowed cable operators to pour
an estimated $75 billion into upgrading their equipment to support
digital signals.
"We definitely take our regional [phone company] competition
seriously," said Winston Warrior, director of marketing for Cox's
high-speed Internet service division.
"The early adopters are already in the [broadband] category," he said.
The battle now "is over getting customers to upgrade from dial-up."
About 80% of the nation's Internet users still connect through dial-up.
To gain an edge in winning converts, the phone companies are forging
stronger ties with independent Internet service providers such as
Microsoft Corp. The phone companies essentially act as wholesalers in
such deals, an arrangement called provisioning.
Jim Murphy, president of Los Angeles-based DSL Extreme, one of the
fastest-growing DSL providers in California, said provisioning had
become "a real bright spot" in his firm's relationship with the
regional phone companies.
He noted that it had helped "eat away at cable's market share."
The big subscriber increases reported by the phone companies include
wholesale DSL lines sold to independents such as DSL Extreme, as well
as DSL lines the phone companies sell directly to business and
residential customers.
To be sure, some contend that the phone companies are not so much
competing directly against cable as they are try- ing to use DSL to
defend their lucrative local telephone monopolies.
For example, SBC, California's dominant local phone company, prices DSL
as low as $26.95 a month for subscribers who get local phone service
from SBC. SBC gained 447,000 DSL customers in the first quarter of this
year but lost 427,000 traditional voice-line customers during the
period.
"The market isn't as competitive as the [phone companies] are
pretending," said Yale M. Braunstein, an economics professor at UC
Berkeley. "I have real doubts about whether you will really see them
really compete by deploying [fiber-optic cable] to the home" along with
other technology that would vastly increase broadband speeds.
Although most cable companies have so far maintained their $40-to-$50-a
month broadband rates, the phone companies' DSL package discounts may
prove to be a winning strategy in the long run.
In a study released this spring, 71% of those surveyed by Yankee Group
said they would switch to a faster broadband service if it were priced
at the level of dial-up service — about $10 to $25 a month. By
contrast, only 17% said they would pay $45 or more for broadband.
"We are continuing to look at how we integrate our products together,"
said Warrior, who noted that Cox was bundling broadband and local phone
service with cable TV in some markets. "We are trying to stay away from
that naked DSL" kind of offering.
"We believe our triple-play bundle is the sweet spot."
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Copyright 2004 Los Angeles Times
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