Prices on the broadband front continue their decent, but views differ on where cable companies stand in the price wars. Consumer broadband Internet service rates have steadily fallen from their highs in 2001, with cable broadband service prices having dropped by 9.1 percent in the first quarter of 2004 from an average of $44.35 per month at the end of the fourth quarter of 2003 to an average of $40.85 per month at the end of the first quarter of 2004, according to Current Analysis Inc. Meanwhile, standard ADSL monthly prices decreased 4.8 percent over the same time period, from an average of $40.56 at the end of 2003 to an average of $38.62 at the end of the first quarter of 2004. These average prices take into account broadband promotional incentives that take the form of free or discounted months of service (e.g., the first three months for $19.95 per month).
DSL providers are eager to gain market share and have been willing to set lower prices to build out their subscriber bases, says Bruce McGregor, an at Current Analysis.
Broadband Monthly rentals in the United States
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He says price cuts by SBC Yahoo! DSL and Verizon Online DSL — the nation’s two largest DSL providers — have contributed significantly to making DSL less expensive than cable broadband service. DSL providers have lowered the price for standard service, or introduced tiered service, at costs between $26 and $35 per month. These broadband price points are designed to entice dial-up subscribers, as it is close to what many consumers now pay for dialup access from AOL, MSN and EarthLink. SBC Yahoo! is drawing interest to its DSL service with the low price of $26.95 per month with a one-year contract.
Other DSL providers have also been looking for ways to offer more value to consumers, McGregor notes. Verizon has lowered the price for its standard DSL service from $34.95 to $29.95 per month, and BellSouth has introduced FastAccess Lite, a lower speed 256kbps/128kbps DSL option for $34.95 per month (as low as $24.95 per month with select long-distance bundles). Qwest offers its 256kbps service for $31.99 per month, which includes a $3 per-month modem rental fee.
Customers that purchase a local package from Qwest can get DSL for $29.99 per month and can lower the price to $26.99 per month if they purchase their own DSL modem.
Apparently there’s some disagreement on what cable companies are doing with their cable modem pricing strategies.
Percent of Consumer Providers Offering Promotions
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McGregor says cable providers have been reluctant to lower their prices below the $40 per month threshold, with the exception of discounting initial months of service, and instead have chosen to increase standard download speeds from 1.5mbps to 3mbps to better compete with the telcos. “This is a tacit admission by the cable providers that they won’t lower prices to compete with DSL and instead are trying to convince consumers that by raising the download speeds, they are adding more value to their broadband offering,” he writes. “However, unless subscribers are downloading huge files, the difference between Web surfing at 1.5mbps and 3mbps is negligible. Speed doubling is a marketing move to boost the perceived value of its high-speed Internet service, but Comcast and other cable providers are leaving themselves vulnerable to the DSL strategy of lowering prices to make the jump from dial-up less costly. So far, the cable industry appears to have no interest in getting into a price war with the DSL providers.”
However, Haroon Butt, editor of the Operator Source service from research firm Point Topic, says in many cases cable companies are offering lower priced broadband service than their Bell competitors.
Recnet Broadband ISP Success in Home networking
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“DSL actually started off higher than cable modem, then dipped and became lower than cable modem for 2003,” says Butt. “Cable modem is now implementing new pricing so the average price is now lower for cable modem than DSL. Cable modem operators are trying to retain their market share and don’t want DSL operators to take their pipe.”
Meanwhile, Patrick Mahoney, an analyst in the consumer technologies and services area at The Yankee Group, says that the cablecos’ bundled pricing is typically higher than DSL. For instance, he says, Comcast charges $42.95 per month for cable customers and $57.95 for non-cable customers. “Cable providers have typically been a bit higher on pricing, but also have increased speeds sooner than DSL,” he says.
“DSL providers are following the cable lead and also implementing higher speed tiers (3mbps) for a higher price point. So far, SBC and BellSouth have released a 3mbps product and the pricing is in the high 30s if with a bundle.”
Mahoney notes that many telcos now offer different tiers of DSL services, which some believe will be a differentiator for them. But despite that and the growing penetration of DSL, the current market conditions surrounding DSL doesn’t necessarily translate into profits for telcos. According to Credit Suisse First Boston analysts, it takes 39 months for DSL service providers to turn a profit on a new customer, but the average customer switches providers within just 20 months.
On the upside, it appears that home networking equipment could help compensate for at least part of that lost revenue.
According to Parks Associates, broadband Internet providers have now deployed data network solutions to more than one million U.S.
households and at this current pace will reach nearly two million by the end of 2004. That’s a 60 percent increase from year-end 2003 to the first half of 2004 in the number of subscribers who obtained home networking equipment from their broadband ISP, according to the study.
Significantly more subscribers also reported receiving an offer for a home networking solution from their high-speed Internet service provider.
According to Parks Associates, this trend of ISP-related home networking is likely to increase the presence of additional broadband and network-related applications in U.S. homes.
