June 2, 2005 4:00 AM PDT

SBC ups the ante in broadband war

SBC Communications' move to slash prices on its DSL service could spur a pricing war between phone companies and their rivals in the cable industry, say analysts. But cable companies say they're competing on value rather than price.

SBC, the second-largest phone company in the United States, announced Wednesday that it will reduce the price of its DSL service for new subscribers to $14.95. This is the deepest discount that a phone company has given for broadband services, well below the $23.90 that America Online charges for unlimited dial-up Internet access.

Analysts predict that the sharp price cut will put pressure on cable operators such as Comcast, Time Warner and Cox Communications to slash prices on their services as well.

"SBC has taken things to the point where the price differential is really stark between DSL and cable modem service."
--Jim Penhune, analyst, Strategies Analytics

"SBC has taken things to the point where the price differential is really stark between DSL and cable modem service," said Jim Penhune, an analyst with Strategies Analytics. "At this point, with DSL almost half the price of cable services, I think the cable companies don't have much left in their argument for speed over price."

The cable companies say they have no plans to drop prices to compete with SBC. "Our take on competition for broadband is to offer more value to our customers," said Jeanne Russo, a spokeswoman for Comcast, which competes with SBC in several states, including parts of Texas and California.

But analysts caution that the writing is already on the wall, and that cable operators will have to do something.

"I'm sure they will wait to see what the subscriber numbers look like for the next quarter or two before they react," said Penhune. "It will likely start at the local level, where cable operators may reduce prices or offer promotions to compete."

The power of price
SBC and other phone companies have always used price cuts as a way to compete against the cable companies, which got a head start in the market in the mid-1990s. Since that time, the phone companies have been playing catch-up to their cable rivals, which still dominate the broadband market with roughly 59 percent of all subscribers.

Competition between the two sets of companies is heating up even more now as cable companies including Cox and Time Warner also start offering telephone service along with television and high-speed Internet service.

Making matters worse for the phone companies is the fact that their traditional telephone businesses have been in steep decline for the past several years as more and more customers cancel local phone service and instead use cell phones or new Internet-based phone services such as Vonage.

SBC's strategy is simple: The company wants to sign up as many new subscribers as possible.

In order to fight back, the phone companies have been steadily lowering prices and offering customers different tiers of service at reduced prices. Verizon recently increased speeds and kept its price of $29.95.

So far, the pricing strategy has helped phone companies gain some market share. In 2004, DSL had about 41 percent of the market, up from 39 percent the year before. Experts attribute most of the recent jump in DSL subscriptions to the phone companies' more aggressive pricing strategies. This trend is expected to continue with cable and DSL splitting the market evenly in the next three to four years.

SBC's strategy is simple: The company wants to sign up as many new subscribers as possible. The idea is that the more DSL subscribers it has, the easier it will be to sell them

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16 comments

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Cable VS. DSL
You know there was a time when when the prospect of getting your first cable hook-up was awesome. Cable at that time was touted as superior television because of the lack of commecials, great picture, and a dozen more channels.

Now if you have cable, like my-self: You are constantly inendated with commercials every 3 minutes, your monthly bill fluctuates like the stock market, and you'll never be quite sure if there still charging you for the "LINE CHARGE" 2 years later.

If you can get past of all they above, and a loss of internet at leat 3 times a week (MediaCom Cable in Saint Bonifacius, MN). Then maybe Cable is for you! Of course you'll have to get past the $50.00 a month fee, and the fact that the sales lady will tell you that you need to have "EXTENDED CABLE" service to get high-speed internet.

The truth is that: due to video-on-demand (like MediaCom provides), there bandwidth pipes are open full blast anyway, so the need to charge $50 a month is just plain robbin' the general public.

$14.95 is a very respectable price for DSL (768Mb), and unless your KAZZA-ing or Morpheus-ing, you will never, ever, ever, ever, see the whole bandwidth that the cable company charges you for (3000Mb).

We, as server manager's, rarely, if ever, allow more that 200Mb from any one connection. So if your downloading a file, most of the time you will see the download at a cap. The cap in bandwidth is set on the servers so that any one person wouldn't suck all of the power from the machine at once.

Imagine, with my 3000Mb line here at home, I download a Linux image from LinuxISO.org. That image is about the size of a fully burned CD (650MB). If the owners of the website would allow me download the file at full speed, I could possible get it in SECONDS while crippling there server. This includes the fact that no one else would be able to get files from that server as long as "My download" was in progress.

Now with all that said. It is to our, and your, benefit not to allow all of this bandwidth to one person. So in restrospect, the general consumer will never need a 3000Mb line. That fact is that MedaiCom and other companies use this number as a marketing technique.

If a client asks me this same question (Cable VS. DSL), I give them the same answer, Go with the CHEAPER SERVICE. Besides, I'm ready to charge back MediaCom for the Loss of Bandwith that they DON'T GUARENTEE.

My webservers are UP 99.9% of the time (www.tech1hosting.com). They are hooked up to the same backbone that you are MedaiCom. So why does your service go out at least 3 times a week. And sometimes on Sundays and Mondays for most of the day. WE, the comsumers, PAY YOU, The service providers for service.

ChaskaNet hasn't been charging there clients becuase there system dosen't work properly, so why do you continue to charge US?

Bandwith is something that is Ala-Carte to the phone and cable companies. Give us the Ala-Carte price and stop trying to gouge the consumer. These words aren't written in spite, there written with knowledge!

Gotta Cruze.....Justin
Posted by OneWithTech (196 comments )
Reply Link Flag
Wrong wrong and wrong
You do NOT have a 3 gigabyte/3000 megabyte internet line. You are a very confused, misinformed person. You have a 3 MEGABIT internet connection, meaning a max download speed of 375 kilobytes/second.
Now if you got that top speed constantly, it would take you 30 minutes to download that ISO.

Now I have a 4 megabit internet connection through comcast, and I very much enjoy downloading huge game patches, mods, and demos of things at high speeds. I actually get 505 kb/s consistent on a good server.

Cable isnt that bad, your company just sounds like $@#$
Posted by wazzledoozle (288 comments )
Link Flag
you got quite the home connection
3000Mb huh? Lets see that would be aproximately 67 T3 lines (or about 5 OC-12 lines) straight into your house, and for $50 bucks, quite the deal if you ask me. =) I dont think I'd be complaining to much if I had that kind of bandwidth. I'd definately trade away my 5Mb connection any day of the week. (time warner)
Posted by (20 comments )
Reply Link Flag
Cable price fix
In my area Comcast charges around $58 for Cable Modem service, with or without Basic TV.
Posted by (7 comments )
Reply Link Flag
Cable and Phone companies both guilty
of not giving their subscribers a SERIOUS discount for using multiple services.

I pay $100 for a premium cable service (not the highest, but 3 steps above basic). They then charge me $42 for internet service that typically costs $54. So, instead of paying them $154, I pay $142 a month. Do the math, carry the one, 6 gazinda 4, THAT'S an 8% discount. EIGHT PERCENT! Big F'n Deal. I had DSL, they were just as ridiculous, of course, my phone service was a much cheaper expense than cable so the percentage discounted was greater.

Let's hope that the cable operators will lower their prices accordingly. Let's also hope that the Phone companies are able to roll out their IPTV services also. Talk about price wars. Please Texas, don't F this up for the consumer.
Posted by jamie.p.walsh (288 comments )
Reply Link Flag
Cable Companies Restraint Of Trade
I have got to believe that SBC will appeal the Texas court decision preventing them from offering TV over DSL unless they negotiate with each local municipality. It's restraint of trade to only allow a single cable company to offer TV in a given market. It may have made sense 30 years ago when competitive technologies didn't exist, but not anymore. It is akin to the 1982 consent decree breaking up AT&T's monopoly on phone service. We are seeing the positive effects of competition in the Internet service market. Extending competition to TV service will further benefit the consumer. Continuing to grant cable providers an exclusive monopoly is not benefitting the consumer.
Posted by Stating (869 comments )
Reply Link Flag
I absolutely agree
The competition in Internet services has proven best for the consumer and still relatively healthy for service providers. It is time to break the old laws of restraint of trade and move on. The reason that monopolies have progressed THUS far is in direct correlation to this situation. High profit margins and the deep pockets of parent companies have stolen money from the television viewing public.

Let's see what happens when a REAL competitor enters the market.
Posted by jamie.p.walsh (288 comments )
Link Flag
cable customers wont switch, reminds me of AOL dialup for 23.95
The funny thing is that Most cable customers probably stil wont switch. They either have bundles with cable TV, or dont care about paying nearly $45 or (downloaders) like the 4-5MB/s speed boast compared to the 1.5MB/s for 14.99.

Look at AOL dialup. There is still around 20 million customers that pay AOL 23.95 per month for dialup. What do you call that? ignorance, laziness or something else?!
Posted by lavacentral (61 comments )
Reply Link Flag
Wake up AOLers!!
WHAT ARE YOU PAYING FOR? I STILL fail to understand this phenomenon. I have found that 40% of AOL users I've dealt with believe that if they leave AOL, they'll lose access to all of the content on the internet they use right now.

How convaluded is that?
Posted by jamie.p.walsh (288 comments )
Link Flag
How about.... we just get what we're suppose to have...
It makes me sick how cable and DSL companies are just giving us nothing for high prices. We're so far behind it's pathetic. 3-6Mbps? Give me a break! We should have a minimum of 25Mbps. Go visit any other country and it seems like we're using 56k for our broadband. So many countries are way past 25Mbps, some ranging up to 100Mbps, and the cost? Cheaper than what we pay for our slow speed. Give us what we SHOULD have, and watch 56k finally drop dead.
Posted by ca2kjet (14 comments )
Reply Link Flag
what do they do with it
You can get 25Mbs in the states, not everywhere and not for cheap, but you can get it. What specific application do you envision through this bandwidth? Watching TV on computer?

Are you talking about South Korea? I just came back from two semesters in Western Europe (Portugal, Spain, France, and Italy) and internet access isn't that fast there, nor is it that inexpensive. They have fast cell connections, but it costs like $200 a month.
Posted by sanenazok (3449 comments )
Link Flag
Meeting Customer Demand
Very few customers are demanding the bandwidth. It is easier to add a new DSL or Cable subscriber when they are brand new to accessing the Internet. The same is true for Cell phones. Few people just upgrade, they will buy the new camera phone when they get new service. DVD technology was out long before it was accepted into the home. VHS was just "good enough" and there was no need to upgrade. Now most people can't do without DVD.

The quality of what is on the market has always been well below what could be on the market. Thousands of CPU's are clocked well below their functional limits because enough customer demand doesn't exist for the highest speed processors. So they clock them slower, and sell them for less in order to make the sales.

When DSL and Cable first came out, they didn't come out with multiple speed levels. This was a bad oversight on the marketers, and they are correcting this to meet customer demands. Customers only want "a little more" than they have now, so they meter the service out and offer discount lower bandwidth services. Failing to do so will prevent them from picking up those customers.

There are a few customers like you and me, who want the DS-3 in our homes. Don't worry, that service too will start to have demand and become available. I could deal with spending $200 for a DS-3 in my home, just waiting for the price to drop in my area...
Posted by zaznet (1138 comments )
Link Flag
100Mbps
<a class="jive-link-external" href="http://www.analogstereo.com/mitsubishi_galant_owners_manual.htm" target="_newWindow">http://www.analogstereo.com/mitsubishi_galant_owners_manual.htm</a>
Posted by George Cole (314 comments )
Link Flag
Telephone Companies were afraid of DSL.
You have to keep in mind that the telephone companies have been in fear of DSL adoption and did not push their technology to market. The reason being they had MORE TO LOSE than to gain from offering "bandwidth" services to the home.

Your standard telephone service operates below 56Kbit. Voice mail, caller ID, 3-way calling, 411 service, additional phone lines and anything else you pay extra for are provided at the service provider end. Throw in 10 to 20 times the bandwidth and the service is provided at the customer end via hardware and software that runs in the home and is out of the control of the Telco.

Since the Cable companies did not have Internet dialup subscribers or telephone cusomters yet, they had more to gain by offering the bandwidth service and trying to add other services on top of it. So while the Telco stalled to deploy their technolgoy, the Cable companies jumped on it and deployed new technologies to capture a market they were not in fear of losing.

You won't find a Telephone Company executive that will admit to being afraid to deploy DSL, but you can see it throughout the growth of DSL and Cable Internet services.
Posted by zaznet (1138 comments )
Reply Link Flag
even Belllsouth
is afraid to lower their DSL prices too much because it cuts into their dialup profits. So, they offer a "slow" DSL at 256K for about $10 more than dial-up. But if you want REAL DSL, you have to pay about $30 more. Because if they lowered DSL too much, they would lose that cash cow dial-up. they don't realize that by keeping DSL price high, they are losing to cable. In my area, if you are going to pay the same price for either 1.5mbps DSL or 6.0mbps cable modem -- which would you go for?
Posted by ChazzMatt (169 comments )
Link Flag
 

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