TELECOM Digest OnLine - Sorted: Competition Slashing Costs of Broadband

Competition Slashing Costs of Broadband

Deborah Yao (
Thu, 14 Jul 2005 19:30:28 -0500

By DEBORAH YAO, AP Business Writer

Telephone and cable TV companies are slashing broadband prices and
boosting connection speeds as the two monopoly-prone industries
prepare to lock horns on multiple fronts.

Comcast Corp. fired the latest shot in the battle this week by
announcing plans to boost the speed of its entry-level cable broadband
service to 6 megabits per second -- as much as four times faster than a
typical DSL connection over a phone line.

That move follows a series of promotions which have lowered
introductory rates for a high-speed Internet line to between $15 and
$30 a month, down from the typical $30 and $45 a month.

The prize is far larger than signing up more high-speed Internet
users, analysts say. Companies are trying to lock in customers who may
soon be offered the convenience of buying phone, cable, Internet and
wireless services from a single provider out of convenience.

Two of the big regional phone companies, Verizon Communications
Inc. and SBC Communications Inc., are spending billions to replace
their copper lines with fiber-optic cables that provide enough
capacity to deliver hundreds of channels of cable TV starting later
this year.

The cable companies, meanwhile, are rolling out phone service over
their cable lines and exploring options to add cell phones to their

In advance of this head-to-head competition, Verizon, SBC and Qwest
Communications International Inc. recently cut their introductory
rates for DSL to $15 or $20 per month, and the cable carriers Comcast,
Time Warner Inc. and Charter Communications Inc. sweetened their
introductory prices to $20 to $30 per month.

The phone companies are especially "willing to take a hit on margins
... if they can keep their landline users," said Mike Paxton, a senior
analyst at In-Stat, a technology research firm in Scottsdale, Ariz.

But by limiting the price cuts to new customers, the companies may
risk angering their current subscribers.

"It's frustrating that they're not giving their loyal customers the
same kind of deal," said Kerry Smith, an attorney from South
Philadelphia who subscribes to Comcast for cable, but pays Verizon for
Internet and phone service.

The cable and phone companies are betting that existing customers will
find it too inconvenient to switch. That's why cable operators --
which are ahead of phone companies in signing up broadband Internet
users -- don't feel as pressured to slash prices as deeply, Paxton

Even in markets where DSL prices have dropped, cable has not been hurt
badly, Paxton said.

"It's frankly a pain in the butt to switch," he said.

Cable broadband typically costs more than DSL, but cable operators
have emphasized speed, arguing that their rates are competitive since
the connections are often faster. Phone companies, however, have been
closing the speed gap between cable and DSL.

Comcast's speedier connections will be available later this month in
Pennsylvania, New England, New Jersey, Maryland, Michigan and
Washington, D.C. For most of its other markets, the new speeds will be
available by the end of summer. In May, Qwest unveiled a premium DSL
service with a top download speed of 5 Mbps.

"Speed very much matters. Reliability matters," said Dave Watson,
executive vice president of cable operations at Comcast.

The phone companies appear to believe that customers are more aware of
price than speed.

"A lot of people can't tell the difference" in download speed,
spokeswoman Bobbi Henson said.

SBC has been the most aggressive in cutting prices. The company has
cut its DSL price at least three times in less than two years -- from
$26.95 in early 2004 to $19.95 last November and $14.95 in June, said
spokeswoman April Borlinghaus.

But the Internet price war is just a precursor of a larger battle to
come between the industries.

Copyright 2005 The Associated Press.

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