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DSL News
Broadband Becoming Bigger Battlefield As Cable, Phone Firms Fight For Users
Article #: 18
| Date: | | | Written By: | Reinhardt Krause | | Article: | The broadband gloves, it would appear, are off.
Cable TV firm Comcast Corp. (NasdaqNM:CMCSK - News) has launched a new offensive in the battle for high-speed Internet service customers. The main target is phone carrier SBC Communications Inc.
Comcast and SBC rank Nos. 1 and 2 in high-speed Internet subscribers, with 4.86 million and 3.13 million, respectively.
It's a key business for nearly all cable and phone providers. And while avoiding an all-out price war, many providers have been trying more aggressive low-cost introductory offers.
Comcast this month began offering cable-modem broadband services for $19.95 in three states - California, Illinois and Maryland. SBC sells its digital subscriber line broadband services in California, Illinois and 11 other states. In mid-September, it started offering a special $26.95 introductory rate. For SBC and Comcast, these low monthly rates last for the first year of service.
Less Than Half Price
Most broadband rates for phone and cable companies have been $40 to $50 a month. Comcast's regular rate is $42.95 a month for its pay-TV subscribers, or $57.95 just for broadband.
"That $19.95 rate is a big deal," said Bruce Leichtman, who runs Leichtman Research Group. "The challenge for both sides (DSL and cable) will be in converting discount customers into full-price customers when introductory offers end."
While two-thirds of U.S. households with broadband subscribe to cable modem (news - web sites) service, SBC leads in California. It's the dominant local phone company in California. Comcast operates cable systems in Los Angeles, Sacramento and San Francisco.
Comcast's new offer has strings. For one, only current DSL subscribers are eligible. For another, the offer expires Nov. 30.
Yet the one-year length of the low-price offer has sparked much talk in Internet chat groups. Comcast has made $19.95 promotional offers in a few other markets, but the cheap rate lasted only three or six months. Comcast then bumps monthly prices up to normal rates.
Comcast denies it's launching any price war.
"There have been $19.95 offers in other places," said company spokeswoman Sarah Eder. "It's standard marketing and similar to our win-back offers against satellite TV."
The standard marketing/price war line can be fuzzy, but analysts generally agree that there's no all-out broadband price war under way. There are selective battles being waged. Some analysts say price competition will heat up in markets where broadband penetration is greatest, at more than 20% to 25% of households.
Comcast's new offer bests SBC's $26.95-a-month plan. For that rate, customers must sign up online and also get local and long-distance phone service from SBC.
Comcast's $19.95 offer does not include monthly equipment charges. Subscribers can lease cable modems for $3, but they also can be bought at retailers such as Best Buy Co.
Eric Boyer, an SBC vice president, says the local Bell doesn't plan to counter Comcast's offer "for now."
"SBC has always been aggressive on DSL pricing and deployment to drive growth, and we will continue to assess what the optimum price points are," Boyer said in an e-mail.
SBC and Verizon Communications Inc. cut DSL prices earlier this year to spur subscriber growth.
Comcast, the nation's biggest cable TV firm, has said it plans to keep most Internet fees at its standard rate through 2004. Instead of lowering prices, Comcast has upped cable modem speeds for downloading movies, music and games.
"We have been consistent in regards to our price value and our message to analysts and Wall Street," Eder said.
She says Comcast added 472,000 Internet customers in the third quarter, tops among cable TV and phone companies. "We're doing really well if you look at the numbers," she said.
So is SBC. It added 365,000 DSL customers in the third quarter. SBC has added more DSL customers than anyone else in each of the last seven quarters. Its prices have come down steadily from $49.99 in April 2002.
BellSouth Will Select Battles
Cable and phone companies operate in different regions and cities. Comcast's service area differs from that of SBC, Verizon and BellSouth Corp. The situation lends itself to selective price battles.
At a meeting with Wall Street analysts in New York on Monday, BellSouth Chief Executive Duane Ackerman said "general across-the-board price reductions aren't likely" for its DSL service in 2004. It charges about $45 for DSL as part of product bundles.
But Ackerman said BellSouth will implement more "market-by-market pricing." BellSouth will target cities in which cable firms dominate in broadband market share, he says.
BellSouth might lower DSL prices in markets such as New Orleans and Charlotte, where cable is strong, while keeping prices steady in Miami and Atlanta, says Merrill Lynch analyst Adam Quinton.
While avoiding price cuts, cable firms Cox Communications Inc. and Charter Communications Inc. have rolled out tiered rate plans.
Those services give consumers and home-office users a choice of broadband speeds at different prices.
Getting subscribers to stick around after introductory rates end is a challenge for all broadband providers. Cable and phone companies say e-mail could help them retain broadband customers.
Some people have free e-mail accounts, such as MSN's Hotmail. But many use the e-mail account they get when they sign up for Internet access service. And they lose that when they switch providers.
At a recent Goldman Sachs conference, Comcast Chief Executive Brian Roberts said 60% of its Internet customers use Comcast e-mail addresses.
"To switch from that is a big deal," he said.
Analyst Leichtman agrees.
"E-mail addresses are absolutely key," he said. "It'll be interesting to see whether offer-driven customers hold onto a Hotmail e-mail address in anticipation of getting rid of a (broadband) service when (low-rate introductory) offers expire."
In any case, the offers keep coming. Time Warner Cable spokesman Keith Cocozza says the company has a few promotions in play. They include $29.95 for three months and $34.95 for six months in certain markets. In Rochester, N.Y., Time Warner Cable even offers the first three months for free.
The San Francisco Bay area is a key battleground for SBC and Comcast.
Comcast bought AT&T Corp.'s cable business in late 2002.
AT&T's cable systems in the area had to be upgraded to offer broadband, and Comcast has raced this year to roll out cable modem services there.
One-third of the region still can't get it.
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