‘Naked DSL’: Qwest To Offer Web Service Separate From Phone

Among the biggest drawbacks to switching your local phone service or going all wireless is that you can lose your high-speed connection to the Internet in the process. But that’s about to start changing.

By SHAWN YOUNG
Staff Reporter of THE WALL STREET JOURNAL

http://www.wsj.com

Beginning this week, Qwest Communications International Inc., which provides local phone connections in 14 Western and Mountain states, will become the first regional Bell company to let customers buy high-speed digital-subscriber-line, or DSL, Internet service from it even if they get their local phone service elsewhere. It is nicknamed "naked DSL," and it is a welcome change to some consumer advocates.

Until now, it has been the longstanding policy of all the nation’s local Bell companies to cut off DSL if customers switched their local phone service. The practice has been widely criticized by consumer advocates and some state regulators as a coercive tactic. Few consumers who rely on DSL at home would be willing to lose it in order to switch local phone carriers. And DSL customers who want to save money by relying entirely on their cellphones or by making calls over the Internet often were thwarted by having to pay for a conventional voice line they didn’t want.

Qwest has decided to cater to these customers — rather than risk losing them entirely to cable companies that also offer high-speed connections.

The new Qwest service will cost $33 a month. That’s about $10 a month less than the going rate for cable modem service in most of the country.

Consumer advocates endorsed the move by the Denver company. "We love lots of different pricing options for consumers," says Chris Murray, legislative counsel for Consumers Union, a consumer advocacy group in Washington, D.C. Qwest’s new a la carte DSL service is particularly timely, he says, because more consumers are experimenting with alternative ways of making calls.

So far, only Qwest has changed its policy. Verizon Communications Inc., of New York, the nation’s largest phone company by revenue, plans a similar DSL offer, though it hasn’t decided how or when to proceed, a spokeswoman said. BellSouth Corp., of Atlanta, and SBC Communications Inc., of San Antonio, aren’t making any changes, though BellSouth does offer standalone DSL in a few cases that are dictated by state regulators.

Tying local phone and DSL together helps the Bells stem the loss of local phone lines, which are more profitable than DSL, and slows customer defections to rival phone services. It also drives some customers into the arms of cable companies, which also offer phone service in many areas and are the phone carriers’ most-feared rivals.

"We decided we’d rather not lose the customer," said Qwest Chairman and Chief Executive Richard Notebaert. Mr. Notebaert says Qwest and other phone companies must face the fact that their traditional businesses have become commodity services that consumers assume they can get cheaply from a variety of sources.

Sacrificing vanguard services such as DSL or calling using Internet technology known as VOIP, short for voice over Internet protocol, in order to hang onto old-fashioned phone lines is misguided, Mr. Notebaert said.

The company also had significant demand from customers who wanted to use wireless service exclusively for their phone calls. The company doesn’t plan a media blitz to advertise the new service, but will do targeted marketing through mailings and sales representatives.

Driving the most cutting-edge consumers to the competition isn’t good strategy, says Matt Davis of Yankee Group, who says Qwest may have been first to act because it is furthest behind in being able to offer DSL.

The stakes are huge as consumers increasingly come to regard a high-speed connection as standard and a phone line as just one of several options for making calls. Yankee Group, a Boston research firm, estimates that broadband lines reached about 20% of U.S. households by the end of last year and will reach about 44% during the next four years.

Though phone companies were slow to deploy Internet access via DSL, they are beginning to catch up and naked DSL could help. Cable-modem service has a huge lead, serving 14.6 million households at the end of 2003, compared with 7.2 million for DSL, according to Yankee Group. In recent months, DSL has been making inroads by cutting prices in much of the country between $30 and $40 a month, compared with about $43 for cable, says Patrick Mahoney of Yankee Group.

The best high-speed prices are linked to other services at both cable and phone companies. DSL usually is cheapest as part of a package that includes local, long-distance and wireless service. Cable companies charge as much as $60 a month for Internet service without cable television, Mr. Mahoney says.

Write to Shawn Young at [email protected]

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