May 12, 2005 3:27 PM PDT

DSL subscribers on the rise

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Major U.S. telephone companies are closing in on the cable operators' dominance of the broadband market, as subscription rates on DSL outpaced those in cable for the first quarter of 2005.

Cable companies and phone companies both reported record growth in subscriptions. But large telephone companies added 1.4 million DSL subscribers during the first quarter, while cable companies added 1.2 million lines, according to market researcher Leichtman Research. Currently, about 35.9 million households subscribe to the top 20 telephone and cable companies in the United States.

Since broadband was first made available, in the late 1990s, telephone companies have lagged behind cable companies in terms of subscribers. But the gap is closing.

In 2004, cable led the market with 59 percent of total subscribers, compared with 62 percent in 2003, according to research firm Strategy Analytics. Meanwhile, phone companies have been gaining market share. In 2003, DSL accounted for 39 percent of the broadband market, up from 36 percent the previous year. Cable operators' share of the broadband market is expected to shrink to around 50 percent in the next three to four years, as the phone companies continue their push with DSL and fiber-to-the-premises (FTTP) services, said Jim Penhune, an analyst with Strategy Analytics.

Experts attribute most of the recent jump in DSL subscriptions to more aggressive pricing plans from the telephone companies. For example, several phone companies have been offering start-up discounts and tiers of service, with lower prices for lower download speeds.

"We think it's a combination of our pricing and the services we offer," said Bobby Henson, a spokeswoman for Verizon Communications, which added 385,000 subscribers in the first quarter. "Cable has traditionally focused on speed, whereas we focus on speed, pricing and content, which we believe equates to a better value."

Last month, Verizon started offering DSL download speeds of 3mbps for $29.95, the same price as its 1.5mbps service. It also is providing an integrated wireless router to customers who sign a one-year contract so more than one computer can share the connection at home.

On average, DSL service ranges in price from $20 to $30 a month before discounts. Prices on cable broadband typically start around $30 to $40 a month and can go as high as $65 a month. For the most part, cable operators have competed with the phone companies on speed rather than price.

Time Warner has raised its download speeds to 5mbps and 8mbps. Prices vary depending on the market, but a 5mbps service can cost $35 to $40 in a bundle that also includes cable television and Internet phone service. The 8mbps service costs about $64.95 as part of this "triple play" bundle.

The idea of bundling services and adding greater-value services is becoming increasingly important. Cable companies already offer high-speed Internet access and TV services. Many, including Time Warner and Cablevision, also have added voice service.

"The way we have been growing the business is by delivering better value at higher speeds with more robust content," said Keith Cocozza, a spokesman for Time Warner Cable. "And when the products are bundled, (customers) can see even more value in our offering. In some markets where competition has been fierce we?ve offered discounted promotions."

Meanwhile, phone companies also are trying to add a triple-play bundle that includes voice, video and data. Verizon is building out its FTTP network, called Fios, which will deliver telephony, high-speed Internet and TV service. SBC Communications also is upgrading its network by putting more fiber closer to customers. Although it is falling short of running fiber to individual homes, it nonetheless plans to offer the triple play of services over its network.

"In the long run, the race won?t be between DSL and cable," Penhune said. "It will be between the phone companies and the cable operators."

 

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