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Death of dial-up; New subscribers put high-speed in the fast lane

Thu, 12/02/2004 - 7:00pm
Harry Berkowitz

Copyright 2004 Newsday, Inc.

Newsday (New York)

December 3, 2004 Friday

ALL EDITIONS

The shift from dial-up Internet service to high-speed access is accelerating, not slowing, according to a new report.

That could be bad news for services like AOL and MSN with mostly dial-up subscribers, and good news for cable modem and DSL versions of Internet service.

"Cannibalization of dial-up residential Internet users by broadband is gaining steam," Craig Moffett, a telecommunications analyst at Sanford C. Bernstein, said in the research report yesterday.

The common wisdom has been that the shift toward high-speed access would run into price barriers, as customers balked at steep fees.

But dial-up users are finding more and more reasons and temptations to switch, ranging from Internet features that require high speeds to discounts and bundles offered by cable TV and phone companies.

High-speed access accounts for 44 percent of total residential Internet customers in the United States, compared with 18 percent at the end of 2001.

In the first nine months of this year, the four largest dial-up operators, including America Online, lost more than 4.3 million subscribers, Moffett said. That loss was 16 percent greater than in the same period of 2003. "With the erosion of dial-up still accelerating, there is plenty of room for continued growth for broadband," Moffett said.

In 2005, Moffett expects 9.6 million new subscribers for broadband service, compared with an estimated 8.9 million by the end of this year, a 7 percent jump. And by 2010, he forecasts nearly 83 million customers will have broadband subscriptions, or nearly 98 percent of the Internet market, compared with 33 million this year.

The fight for those subscribers has intensified.

Cable operators account for about two-thirds of broadband subscribers today, compared with the one-third held by phone companies, in part because high-speed service from cable companies became widely available more quickly. But phone companies have been narrowing the gap as their DSL service becomes more widely available, as they offer steep discounts and as they bundle Internet service with phone and satellite TV.

Cable operators have fought back. Cablevision Systems Corp. has offered new customers a bundle of cable TV, Internet and phone service, which uses Internet technology, for under $90 per month in the first year. Time Warner Cable also is rolling out Internet-based phone service.

By 2010, Moffett expects cable to drop to 55 percent of the total residential broadband market, compared with 40 percent for DSL. The remainder would be held by other technologies such as Wi-Max, an emerging technology that aims to provide wireless high-speed Internet service over a radius of several miles.

"Commercial web sites are increasingly being geared to the most web-savvy, affluent half of the market that is already using broadband connections," Moffett said. "In short, dial-up is becoming obsolete."

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