IBM, Cisco offer broadband tips

IBM and Cisco Systems have a suggestion for Baby Bells trying to compete with cable companies in the broadband arena: slash your prices.

In an IBM report due out next week and in comments made by a Cisco executive on Tuesday, the tech giants offer tips on feeding consumer appetite for broadband. The companies point out that drastic changes must be implemented not only to help digital subscriber line (DSL) service compete with cable, but also to turn broadband into a household fixture.

"We believe that there remain opportunities for DSL to be a viable part of a carrier's long-term business strategy, and we are making specific recommendations built around reducing carrier costs and improving the end-user value proposition," Salvadore Arias, a partner for IBM Business Consulting Services, said in a statement.

The IBM report, titled "The DSL Migration Path and its Cannibalization Impact on Telecom Carriers," offers a four-pronged strategy for telecom companies to catch up with cable broadband services. The report said DSL providers should bundle access into their wireless and voice services, offer better installation and self-service customer service, buy DSL modems and network equipment in bulk, and encourage PC makers to include DSL modems in their systems.

DSL providers have a long way to go to catch up with their cable competitors. As of June, 12.45 million Americans subscribed to cable modems compared with 8.5 million Americans who subscribed to DSL, according to research firm In-Stat/MDR.

Baby Bells such as Verizon, SBC Communications, BellSouth and Qwest Communications have begun marketing their DSL services more aggressively because of cable's encroachment into their core local telephone service base. Cable companies have shown gains in bundling digital cable TV with broadband and local phone service. The Bells fear these bundles because they are unable to match the video component.

In reaction, SBC and Qwest recently struck deals to sell EchoStar's Dish Network subscriptions alongside their phone and DSL offerings.

Meanwhile, Enzo Signore, Cisco's senior marketing director, said during a speech Tuesday that broadband service needs to be cut to $20 a month to penetrate households more effectively. Currently, broadband service costs about $40 a month for cable while recent promotions among Baby Bells have lowered DSL to as little as $29.95 a month.

"It's a step in the right direction, but I don't believe it's going to shift the market," Signore told analysts at this week's Pacific Crest Securities Investor Conference. "We need to go down to $20 a month to make the transformation to the mass market."

Signore said $20 is about what it costs in Korea, where 80 percent of all households have a broadband connection. In Japan, it's cheaper, costing about $13 a month for a very quick 26mbps connection, he said.

In contrast, U.S.-based DSL providers such as Verizon are charging nearly $40 for 784kbps download speeds and nearly $60 for 1.5mbps. Cable companies average about 1.5mbps for $40 to $50 a month, with some such as Cablevision averaging 3.5mbps download speeds for the same price range. Cable giant Comcast has begun trialing 3mbps speed for certain markets.