February 6, 2006 4:00 AM PST

Can DSL handle success?

After getting piles of mail from Verizon Communications about its new $14.95 DSL service, Barbara Cerney finally decided to ditch dial-up. But when she called Verizon to sign on, she got an unpleasant surprise.

Though her neighbors were using Verizon DSL, the company said the service was oversubscribed and she'd have to wait at least a month. Her only immediate broadband option was to subscribe to Comcast's more-expensive cable modem service. And the Annapolis, Md., resident, having made up her mind about slow Internet speeds, did just that.

The situation illustrates a potential catch-22 for Verizon as it looks to prevail over cable competitors in the broadband market. The company, and fellow DSL provider AT&T, have enjoyed significant success over the past year in using price cuts to convince customers that it's time to make the jump to broadband. But those same promotions could backfire if the companies can't accommodate the increased volume of speed-hungry customers.

"They may end up being a victim of their own success," said Jim Penhune, an analyst with Strategies Analytics. "It may be a good short-term problem to have too many people interested in your service, but it's not something you want as a sustained problem."

Last June, AT&T (then SBC Communications) was the first of the two large phone companies to dramatically reduce its DSL pricing--to $14.95 for the first year of service. In August, Verizon followed suit, offering its new tier of service, which includes 768kbps downloads, for $14.95 per month. And last week, AT&T answered back, with a $12.99 price tag for the first year. Since AT&'s prices are promotional, after the first year the price of the service jumps to the company's regular pricing model, which is $29.99 per month.

Since Verizon floated its $14.95 offer, the company has quickly grabbed new broadband subscribers. Last week it reported that the fourth quarter of 2005 had been its best ever for broadband, with 613,000 new subscribers signing on, a 14 percent quarter-over-quarter increase.

The company now has a total of 5.1 million broadband subscribers, a figure that includes all tiers of DSL customers, as well as subscribers to its fiber-to-the-home service, Fios, an ultra-high-speed package.

AT&T has also seen subscriber numbers jump. In the third quarter of 2005--the quarter immediately following its initial $14.95 promotion--the company increased broadband subscribers by 528,000. That number tailed off a bit in the fourth quarter, when AT&T added 425,000 new DSL subscribers. The company has a total of 6.9 million broadband subscribers.

"The price cuts on DSL by the phone companies have definitely helped them add new subscribers," Penhune said. "I doubt AT&T and Verizon would be reporting the quarter-on-quarter subscriber growth they have the last two quarters if they hadn't cut prices the way they did."

The phone companies' strategy is simple: They hope that by giving customers a taste of broadband at a low price, they'll

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44 comments

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Unsurprising.
AT&T always had its networking act together, and SBC was always a leader in the DSL space with respect to offering lower costs and higher speeds. Verizon, as usual, still operates like a monopoly. I predict that Verizon will try to legislate their way into being competiti... oh wait, they're already doing that in NJ.

-R
Posted by Remo_Williams (488 comments )
Reply Link Flag
Spell Checker Anyone?
AT& ?

:)
Posted by telestarnext (42 comments )
Link Flag
Unsurprising.
AT&T always had its networking act together, and SBC was always a leader in the DSL space with respect to offering lower costs and higher speeds. Verizon, as usual, still operates like a monopoly. I predict that Verizon will try to legislate their way into being competiti... oh wait, they're already doing that in NJ.

-R
Posted by Remo_Williams (488 comments )
Reply Link Flag
Spell Checker Anyone?
AT& ?

:)
Posted by telestarnext (42 comments )
Link Flag
AT&T (SBC) what a joke on DSL Price
The Great AT&T (the old SBC) is just a joke when it comes to there DSL pricing the 14.95 a month is only good for the first 6 months as you said but one other thing is that it is only good if you sign up on the internet and only if your in one of the areas that they normally serve. (IE: the area is only served by them as a class A LEC). The area where I have been attempting to get the service for a friend of mine is in a Verizon owned area but the owners of the Apartments where my friend lives have a contract with SBC the NEW AT&T for them to be the only one to provide service for there complex (not sure of the Legal status of this). When attempting to sign up on the net as required there was no issue but they canceled the order 24hours after and then never called to say any thing we waited until we did not receive the modem and called to find out this information that we would have to call and sign up and would cost 29.95 not the 14.95 on the net. What wonderful customer service from the big conglomerate.
Posted by (5 comments )
Reply Link Flag
Conduit Rights?
Back about 2001 I ran into this same problem at a historic downtown office building. Great rental rates, awesome aesthetics (marble floors, wainscoting and sweeping marble staircase off the entry way).

Broadband? Our choices were dial-up, DSL ($35 a month) and "maybe you can have 128 k ISDN" ($250 a month + another $1,000 to install). Of course, we could have a T-1, and a rate that was higher than the office space.

The local cable company was stubbed into the building, and "business class" cable was fairly inexpensive, but unavailable due to "conduit rights" the building management had signed with Ameritech.

The building remains about 2/3 empty to this day, and I can't help but think it is the conduit rights issue that is holding it back as prime office space.
Posted by Too Old For IT (351 comments )
Link Flag
AT&T (SBC) what a joke on DSL Price
The Great AT&T (the old SBC) is just a joke when it comes to there DSL pricing the 14.95 a month is only good for the first 6 months as you said but one other thing is that it is only good if you sign up on the internet and only if your in one of the areas that they normally serve. (IE: the area is only served by them as a class A LEC). The area where I have been attempting to get the service for a friend of mine is in a Verizon owned area but the owners of the Apartments where my friend lives have a contract with SBC the NEW AT&T for them to be the only one to provide service for there complex (not sure of the Legal status of this). When attempting to sign up on the net as required there was no issue but they canceled the order 24hours after and then never called to say any thing we waited until we did not receive the modem and called to find out this information that we would have to call and sign up and would cost 29.95 not the 14.95 on the net. What wonderful customer service from the big conglomerate.
Posted by (5 comments )
Reply Link Flag
Conduit Rights?
Back about 2001 I ran into this same problem at a historic downtown office building. Great rental rates, awesome aesthetics (marble floors, wainscoting and sweeping marble staircase off the entry way).

Broadband? Our choices were dial-up, DSL ($35 a month) and "maybe you can have 128 k ISDN" ($250 a month + another $1,000 to install). Of course, we could have a T-1, and a rate that was higher than the office space.

The local cable company was stubbed into the building, and "business class" cable was fairly inexpensive, but unavailable due to "conduit rights" the building management had signed with Ameritech.

The building remains about 2/3 empty to this day, and I can't help but think it is the conduit rights issue that is holding it back as prime office space.
Posted by Too Old For IT (351 comments )
Link Flag
Are they kidding?
Why is it that everyone talks about $12.99 or $14.95, but forget that you MUST have a local telephone line at an additional $30-35 in order to get DSL,then your cost is $45 to $50 per month. I was paying $108 fro 1 line and DSL in Atlanta with Bellsouth! Try Comcast and Voip!
Posted by dad071444 (7 comments )
Reply Link Flag
Too bad they aren't kidding...
My total telephone bill maxes out at $97.00/month. That includes 1.5Mbs DSL at $40.00/month, dial tone with unlimited extended local area calls at $13.00/month, long distance at $0.05/minute with a maximum charge of $22.00/month, and government mandated taxes/fees that total up to $20.00/month.

It seems to me that federal, state, and local governments are riding telephone service for all they can get. They're charging almost 26% tax rate for the services offered by the telephone company.
Posted by Shoa_Creek (79 comments )
Link Flag
Are they kidding?
Why is it that everyone talks about $12.99 or $14.95, but forget that you MUST have a local telephone line at an additional $30-35 in order to get DSL,then your cost is $45 to $50 per month. I was paying $108 fro 1 line and DSL in Atlanta with Bellsouth! Try Comcast and Voip!
Posted by dad071444 (7 comments )
Reply Link Flag
Too bad they aren't kidding...
My total telephone bill maxes out at $97.00/month. That includes 1.5Mbs DSL at $40.00/month, dial tone with unlimited extended local area calls at $13.00/month, long distance at $0.05/minute with a maximum charge of $22.00/month, and government mandated taxes/fees that total up to $20.00/month.

It seems to me that federal, state, and local governments are riding telephone service for all they can get. They're charging almost 26% tax rate for the services offered by the telephone company.
Posted by Shoa_Creek (79 comments )
Link Flag
Funny thing is...
Comcast claims to be able to service everyone in their footprint area at the speeds they promise (which in the fine print says that they don't guarantee any speeds and that network speeds may be slower than advertised during high local usage).

On the other hand, DSL can deliver the speeds advertised as long as the customer has a DSL capable phone line and as long as the DSL central office has enough equipment and a big enough internet backbone to handle all of the customers at that central office. I would think that as a matter of good business practice, the company that owns the DSL central office would try to keep peak usage below 85-90% of full capacity in areas that are selling well by installing new equipment and pulling bigger wires to the central office as soon as usage edges above 85-90% (of course, as they approach market saturation, the 85-90% figure should increase but not so much that they fall behind incoming orders).
Posted by Shoa_Creek (79 comments )
Reply Link Flag
Funny thing is...
Comcast claims to be able to service everyone in their footprint area at the speeds they promise (which in the fine print says that they don't guarantee any speeds and that network speeds may be slower than advertised during high local usage).

On the other hand, DSL can deliver the speeds advertised as long as the customer has a DSL capable phone line and as long as the DSL central office has enough equipment and a big enough internet backbone to handle all of the customers at that central office. I would think that as a matter of good business practice, the company that owns the DSL central office would try to keep peak usage below 85-90% of full capacity in areas that are selling well by installing new equipment and pulling bigger wires to the central office as soon as usage edges above 85-90% (of course, as they approach market saturation, the 85-90% figure should increase but not so much that they fall behind incoming orders).
Posted by Shoa_Creek (79 comments )
Reply Link Flag
Wishful thinking
With this kind of customer ("I really don't want to have to pay $45 a month for Internet, so I'll probably try to switch to Verizon when the Comcast promotion ends."), wishing them they will subscribe to higher price (and potentially significantly higher due to the lower margin on the DSL) service is nothing more than wishful thinking from the telco. It's pretty difficult to imagine someone who could stand for dial up for so long could suddenly "wake up" for the need of IPTV when boardcast does everything they want.
Posted by Pixelslave (101 comments )
Reply Link Flag
Wishful thinking
With this kind of customer ("I really don't want to have to pay $45 a month for Internet, so I'll probably try to switch to Verizon when the Comcast promotion ends."), wishing them they will subscribe to higher price (and potentially significantly higher due to the lower margin on the DSL) service is nothing more than wishful thinking from the telco. It's pretty difficult to imagine someone who could stand for dial up for so long could suddenly "wake up" for the need of IPTV when boardcast does everything they want.
Posted by Pixelslave (101 comments )
Reply Link Flag
verizon dsl
I had Comcast broadband for over 19 months and dropped it
bec of monthly cost. I took the 12 month dsl (higher speed offer)
from verizon in Maryland. When taking the second 12 month
contract from verizon this month (FEB), I stepped down to the
$14.95 a month slower dsl speed which has now taken place. I
notice very little difference in connect speed-and the
downloading of urls in comcast (reportedly faster than dsl) the
higher speed verizon dsl and the slower speed verizon dsl.
HOWEVER, I will tell you it is my experience that the verizon dsl
has MANY more drops in connection than the comcast
broadbank. If I can afford comcast next year at verizon renewal
time (FEB 2007), I will change back to Comcast unless verizon
Maryland corrects the problem of dropoff of dsl internet
connections.
Posted by Knute Rondum (5 comments )
Reply Link Flag
verizon dsl
I had Comcast broadband for over 19 months and dropped it
bec of monthly cost. I took the 12 month dsl (higher speed offer)
from verizon in Maryland. When taking the second 12 month
contract from verizon this month (FEB), I stepped down to the
$14.95 a month slower dsl speed which has now taken place. I
notice very little difference in connect speed-and the
downloading of urls in comcast (reportedly faster than dsl) the
higher speed verizon dsl and the slower speed verizon dsl.
HOWEVER, I will tell you it is my experience that the verizon dsl
has MANY more drops in connection than the comcast
broadbank. If I can afford comcast next year at verizon renewal
time (FEB 2007), I will change back to Comcast unless verizon
Maryland corrects the problem of dropoff of dsl internet
connections.
Posted by Knute Rondum (5 comments )
Reply Link Flag
BellSouth
Too bad i live in BellSouth region (atlanta, ga). They don't seem
to care if their prices are about the same price or higher than
Comcast and they don't care if their connection speeds are
lower. That's why i'm stuck in the $45/month faster comcast
service.
Posted by nyte3k (19 comments )
Reply Link Flag
Re: BellSouth
The main reason bellsouth isn't lowering prices is comcast isn't delivering hispeed in many atl areas. They've had billboards up for 5 years, but no hispeed in my area. Bump them, they took too long. BS (no pun intended) doesn't have to step up much. Watch what happens when comcast rolls out hispeed throughout the ATL, prices will drop like a hot rock! Come on comcast, i need a dsl discount!
Posted by bigdawg1988 (4 comments )
Link Flag
BellSouth
Too bad i live in BellSouth region (atlanta, ga). They don't seem
to care if their prices are about the same price or higher than
Comcast and they don't care if their connection speeds are
lower. That's why i'm stuck in the $45/month faster comcast
service.
Posted by nyte3k (19 comments )
Reply Link Flag
Re: BellSouth
The main reason bellsouth isn't lowering prices is comcast isn't delivering hispeed in many atl areas. They've had billboards up for 5 years, but no hispeed in my area. Bump them, they took too long. BS (no pun intended) doesn't have to step up much. Watch what happens when comcast rolls out hispeed throughout the ATL, prices will drop like a hot rock! Come on comcast, i need a dsl discount!
Posted by bigdawg1988 (4 comments )
Link Flag
Verizon DSL same as dial-up in my area.
I tried Verizon DSL, and ditched it after a year... the service eventually performed so badly, I was back to dial-up speeds. If that's the best Verizon can do, I don't care if they charge 5 cents for their DSL... it's not worth it.
Posted by Steve Jordan (126 comments )
Reply Link Flag
Verizon DSL same as dial-up in my area.
I tried Verizon DSL, and ditched it after a year... the service eventually performed so badly, I was back to dial-up speeds. If that's the best Verizon can do, I don't care if they charge 5 cents for their DSL... it's not worth it.
Posted by Steve Jordan (126 comments )
Reply Link Flag
Good policy
I'm actually pretty happy to hear Verizon is telling customers they'll have to wait. Its better than signing up everyone they can and having everyone have to deal with network outages.

I have no love for Verizon as a company - I think they're scummy and love to nickel and dime you (which I really hate). But I have to say I've had their standard DSL package for two years now, and its been out _maybe_ a couple hours over that entire time.
Posted by (402 comments )
Reply Link Flag
Good policy
I'm actually pretty happy to hear Verizon is telling customers they'll have to wait. Its better than signing up everyone they can and having everyone have to deal with network outages.

I have no love for Verizon as a company - I think they're scummy and love to nickel and dime you (which I really hate). But I have to say I've had their standard DSL package for two years now, and its been out _maybe_ a couple hours over that entire time.
Posted by (402 comments )
Reply Link Flag
DSL customers have to buy equipment
My experience with DSL in Wisconsin is you have to buy the equipment and then sign up for a year at a time. Sounds like a lousy deal to me. I don't want to get stuck for a year with bad service. Cable is month to month and they provide all the equipment for free.
Posted by lingsun (482 comments )
Reply Link Flag
DSL customers have to buy equipment
My experience with DSL in Wisconsin is you have to buy the equipment and then sign up for a year at a time. Sounds like a lousy deal to me. I don't want to get stuck for a year with bad service. Cable is month to month and they provide all the equipment for free.
Posted by lingsun (482 comments )
Reply Link Flag
Verizon - Boo!
I had a very high speed Verizon DSL for two years and found their customer service a joke. They started off by assuming the customer is an idiot and trying to blame the customer for the problem. They refused to answer the simplest question like is the internet down or is an internal problem. It is worse than calling the IRS. After one frustrating call, they told me that in 48 hours I might or might not be told that the interest was or wasn't down.
As a consultant I have set up numerous local accounts for small businesses over the years. I noticed that with the local cable company, I could also find a real tech to talk to in a matter of minutes and he would stay with me to resolve the problem.
When the local cable company started offering 2 MBS speeds at the same price as Verizon I switched and have never looked back.
Posted by David Stamps (6 comments )
Reply Link Flag
Verizon - Boo!
I had a very high speed Verizon DSL for two years and found their customer service a joke. They started off by assuming the customer is an idiot and trying to blame the customer for the problem. They refused to answer the simplest question like is the internet down or is an internal problem. It is worse than calling the IRS. After one frustrating call, they told me that in 48 hours I might or might not be told that the interest was or wasn't down.
As a consultant I have set up numerous local accounts for small businesses over the years. I noticed that with the local cable company, I could also find a real tech to talk to in a matter of minutes and he would stay with me to resolve the problem.
When the local cable company started offering 2 MBS speeds at the same price as Verizon I switched and have never looked back.
Posted by David Stamps (6 comments )
Reply Link Flag
Ah, my old friend Verizon
After having ISDN from Verizon and "attempting" to switch to their DSL and telling them to forget it after four (4) months of no phone and no internet and after talking to the ISDN people who aren't allowed to talk to the phone people who aren't allowed to talk to the DSL people who are in Florida and can't talk to the ISDN or phone people in Texas who can talk to the local exchange people who don't know how the heck to hook up DSL since the DSL people are from a different company that Verizon people can't talk to who it turns out is owned and employed by Verizon, I told them to forget it, I'm getting cable. 3 hours later I had cable internet.

Verizon is still sending me bills for $849.32 for this experience. They did send me 7 DSL modems in one day. And charged me $99.00 each for them which was a very nice gesture since they never sent me the return labels for them that I requested after I was told in no uncertain terms that "these units have to be returned within 30 days or you will be charged $99.00 for your modem". They were unable to explain if I had to pay for the 7 modems that I didn't request that I never got the return labels for.

Recently they offered to settle the account for $21.00.
Posted by kitcar (7 comments )
Reply Link Flag
Ah, my old friend Verizon
After having ISDN from Verizon and "attempting" to switch to their DSL and telling them to forget it after four (4) months of no phone and no internet and after talking to the ISDN people who aren't allowed to talk to the phone people who aren't allowed to talk to the DSL people who are in Florida and can't talk to the ISDN or phone people in Texas who can talk to the local exchange people who don't know how the heck to hook up DSL since the DSL people are from a different company that Verizon people can't talk to who it turns out is owned and employed by Verizon, I told them to forget it, I'm getting cable. 3 hours later I had cable internet.

Verizon is still sending me bills for $849.32 for this experience. They did send me 7 DSL modems in one day. And charged me $99.00 each for them which was a very nice gesture since they never sent me the return labels for them that I requested after I was told in no uncertain terms that "these units have to be returned within 30 days or you will be charged $99.00 for your modem". They were unable to explain if I had to pay for the 7 modems that I didn't request that I never got the return labels for.

Recently they offered to settle the account for $21.00.
Posted by kitcar (7 comments )
Reply Link Flag
The double-edged sword that a service-provider faces
I was thinking over this issue about what an Internet service provider has to face up to when it sells a desirable Internet service for "a dime a dozen".

They have to think of what way they have to go to meet the demand. If the service is like cable or FTTH, it will also mean having to work out how many trucks that are available to roll out the technology to subscribers.

It may mean that the company may have to go into further debt to raise cash in order to provide the service. It would be an asset if the service is purely standards-based because they may have to have a second supplier "on call" to provide "infrastructure" equipment to meet the demand even if the regular vendor can't satisfy the demand quickly enough.

Thinking of a "waiting-list" scenario may have customers walking out of the special deal and in to the hands of competing service providers because they want it noe.

A good thing for the providers to do is to be able to have demand-satisfaction contingencies in place before they run that rock-bottom deal.

With regards,

Simon Mackay
Posted by SimonMackay (28 comments )
Reply Link Flag
 

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