Tuesday, November 18, 2008

2008: first time a company lost DSL customers

The battle between cable and phone companies to sign up new customers for high-speed Internet service is heating up. Customers can save money and get faster service, and what used to be considered fast is now not so fast.

Earlier this year Verizon Communications became the first company ever to see a drop in DSL subscribers -- some of whom switched to its faster FiOS service. Verizon is now offering customers six months of DSL service free to people who sign up for the company's phone and Internet package. That makes the bundled package $45 a month, vs. $65 prior to the offer. AT&T is now guaranteeing its current prices, ranging from $20 to $55 a month, for two years.

Cable and phone companies have competed for broadband customers for more than a decade, but discounts have been relatively modest, mainly because the companies continued to add new customers at a healthy clip. Now the market is maturing quickly; some 60% of US households currently have a high-speed Internet connection.

Cable and phone companies added 887,000 new broadband customers during the second quarter of 2008 -- half the number they added a year earlier.

And while the new additions were long split roughly evenly between the two camps, the tide turned dramatically in cable's favor for the first time in 2008. Cable companies picked up 75% of the new customers, sending the phone companies into a scramble. As bandwidth-hungry applications like video downloads grow, customers prefer the generally faster speeds cable offers. Cable companies have also been marketing more aggressively in recent months.

Winning broadband customers has enormous strategic consequences for both cable and phone companies. It gives them a foot in the door to sell other services, such as TV and phone service. People prefer to get phone and TV services from the same company that provides them with their broadband connection. And broadband services are also the most profitable of the bundled services. (info from The Wall Street Journal)

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