Discounted DSL Prices Could Slow High-Speed Gravy Train

Cable World,  May 5, 2003  

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Byline: MAVIS SCANLON

Trailing in the race to win high-speed Internet customers, DSL providers are striking back and may ultimately force MSOs to drop HSD rates.

Verizon, following in SBC's footsteps, introduced a discounted DSL service plan last week. Qwest protested the blocking of an attempt to advertise DSL on Comcast's systems; in a letter to Comcast president and CEO Brian Roberts, Qwest CEO Richard Notebaert said if Comcast's advertising policy of not accepting DSL-only ads "isn't illegal, it should be." Comcast serves about 70% of the broadband customers in the 14-state Qwest service area.

For years, telecom companies have been mired in regulatory issues and the complexities involved in opening their networks to competitors. DSL itself has suffered from service and profitability issues. MSOs, meanwhile, have been able to market to captive audiences. MSOs currently have 66% of the HSD market.

Cable modem customers outnumber DSL customers by about 2-to-1. But with the market for broadband customers expected to grow another 40% this year to nearly 24 million, much is at stake.

Telecom providers are focusing on DSL as part of a bundle that includes local and wireless services. According to Salomon Smith Barney, DSL-capable locations will expand to 70% by the end of this year, up from 59% in 2002. SSB analyst Niraj Gupta last week lowered his rating on the cable sector to market weight from overweight, based on his assumptions that MSOs will lose some of their pricing power for the high-margin data service in coming years. "An RBOC is willing to discount DSL to protect its core local phone business," he said in a report. Although cable operators will continue to capture more than 60% of new customers, "that market share advantage subsides over time."

Verizon, which competes with Comcast in the Northeast, has soft launched a DSL product at $34.95, about $10 less than the average cable modem price.

Comcast, which estimates it will serve 5 million HSD customers by year-end, says the threat of intensifying competition is nothing new.

"The numbers speak for themselves," says Dave Watson, EVP of marketing for Comcast. "The bottom line is that we feel really confident of our product position."

Comcast spokesman Tim Fitzpatrick says the company is still reviewing Qwest's April 28 letter. Comcast accepts advertising from Qwest, he says. Limitations on competitive advertising are standard business practice, he adds, a sentiment echoed by Time Warner Cable, which does not accept DSL ads at all, and others in the industry.

Says NCTA chairman and Insight Communications CEO Michael Willner, "When was the last time you saw a CBS ad on NBC?"

Conversely, Charter Communications accepts DSL ads.

Fitzpatrick declined to comment on Qwest's assertion that Comcast rejected a Qwest ad that promoted DSL in the Albuquerque, N.M., market as recently as April 15. The ad promoted DSL as part of a bundle, according to Qwest spokesman Bill Myers.

Qwest announced a $75 million investment to make DSL available to an additional 1 million customers this year; its DSL subscriber base is just over half a million. With Staci D. Kramer.

THE NEXT QUESTION:

*Can equal access for advertising be imposed on an MSO?

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