DSL Firms Drop Prices to Compete

In the battle for broadband dominance, U.S. cable firms long have held a competitive lead over phone companies offering digital subscriber line, or DSL, technology.

By Joanna Glasner Wired.com

Lately, however, phone companies have been fighting back with one of the most potent weapons in their arsenals: price cuts.

Under service plans recently rolled out with little promotional fanfare, the nation’s two largest local phone companies have reduced substantially the cost of subscriptions for DSL, with prices for new subscribers hovering around $35 a month. Some industry experts expect there will be more cuts to come.

"There’s a trend of DSL prices coming down," said Cynthia Brumfield, president of Broadband Intelligence, a research firm. "It’s a reflection of how important it is to capture the broadband market for the telephone companies."

In an increasing number of cities, Brumfield said, standard DSL prices are now below cable broadband rates. This is a switch from last year, when cable broadband prices were substantially lower — $40 a month on average, compared to about $49 for a typical DSL rate.

And DSL prices keep coming down.

This week, Verizon Communications — one of the nation’s largest DSL providers — quietly cut the price for its basic service plan from $50 a month to $35. The company slashed rates for an enhanced service with higher data-transmission speeds even more dramatically, from $60 to $35.

The company declined to discuss the reasons for cutting prices on the services, delivered through a partnership with MSN.

Verizon’s cuts follow similar reductions at SBC Communications, which provides DSL in 13 states through a partnership with Yahoo. About two months ago, SBC began offering a subscription rate of $35 a month for customers who agree to a one-year contract.

For subscribers who plan on staying with SBC for at least a year, the cost is substantially lower than the $50 rate for customers on month-to-month plans.

Fletcher Cook, an SBC spokesman, described the new plan as a promotional offering rather than a straight-out price cut since users must agree to a longer-term contract to get the lower rates. He could not confirm how long the offer would last.

The phone companies’ promotional fervor comes as DSL providers continue to lag behind cable companies which, according to Brumfield, serve about 66 percent of residential broadband customers.

A key selling point for cable, Brumfield said, is that it is typically faster than a standard DSL connection. However, one drawback is that cable providers can and often do charge higher rates for broadband to people who don’t also purchase television service from them.

Even with competitive pressure from cable, DSL is growing rapidly as more Net users ditch dialup for broadband. According to DSL Forum, an industry group, more than 2 million households in the United States added DSL connections in 2002. By the end of the year, DSL providers had approximately 6.45 million residential customers.

Tom Starr, DSL Forum’s chairman, said phone companies have tried to spur demand for DSL by providing a greater variety of service plans at varying prices. Most of the largest providers currently offer so-called tiered pricing, in which customers pay lower rates for slower connections with dynamic IP addresses and higher rates for top speeds and static IP addresses.

In addition, possibly taking a cue from the cable industry, some DSL providers, such as SBC, are offering lower rates for Internet access for customers who also buy other products from them, like land-line and wireless phone service.

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