December 9, 2003 11:44 AM PST

Broadband newbies pick price over speed

A growing number of broadband subscribers are choosing price, not speed, when it comes to picking a provider.

That's good news for digital subscriber line (DSL) providers, namely the Baby Bell phone companies that have introduced access services that are cheaper, but slower, than cable providers. Most of the Bells' gains have come from customers subscribing to broadband for the first time, according to a Forrester Research study released publicly on Tuesday.

"We're seeing that from a trend based on who's getting broadband today, there's a slightly higher growth rate from DSL companies than cable companies," said Jed Kolko, an analyst at Forrester Research.

Can DSL outpace cable?
Digital subscriber line services added customers at a faster rate than cable did in the second and third quarters of 2003--but not enough to make a significant dent in cable's dominant market share.

New subscriber growth

DSL
Q1: 10.9%
Q2: 9.4%
Q3: 11.1%

Cable
Q1: 11.2%
Q2: 7.5%
Q3: 9.3%

Sources: Forrester Research and company quarterly earnings

However, an increase in consumer interest for less-expensive broadband will not significantly bridge the market share gap between cable's nearly 2-to-1 lead over DSL, the report added.

The study highlights the market share war between the Bells and cable, the largest providers of broadband access to households. The Bells stepped up the battle earlier this year when they began discounting their DSL services in hopes of adding new customers. Now households can get DSL for as little as $26.95 for the first 12 months with SBC Communications, or $34.95 as a base price for Verizon Communications.

The Bells have heightened their competition against cable to prevent further erosion of their primary subscribers. Cable companies can bundle their TV programming with broadband and phone service on one bill, which the Bells fear will convince their customers to drop their phone lines.

Cable companies, meanwhile, have largely resisted price cuts and have maintained their $40 to $55 a month subscription fees. Instead, cable companies have reacted to the Bells' price cuts by boosting their base speeds, with leaders such as Comcast and Time Warner Cable's Road Runner increasing their top base speed to 3mbps. That's far faster than most DSL services, which offer top speeds of 384kbps for their base plans.

Cable executives are divided on the issue of price. Some executives are advocating a cheaper, slower service to battle the Bells, while others believe cable services should offer greater speeds to appeal to premium customers. This has sparked some market experimentation; some cable companies are offering limited discounts in certain geographic regions.

The disparity between price and speed will continue in the near future, as more new customers continue to gravitate to cheaper services and broadband veterans demand more bandwidth for their buck. But DSL's gains aren't likely to help it make significant inroads against cable's entrenched lead.

"Acquisition is only half the game for winning broadband share. The other half is retention," Forrester's Kolko said. "Cable subscribers are more loyal than DSL subscribers, even though there are more new subscribers going to DSL. The difference in growth rates isn't enough to close that gap quickly."

 

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