In the spectacular duel for high-speed market share supremacy, cable's dominance is diminishing. Or maybe not — it depends on how you measure size.
As year-end tallies roll in, the gap in subscribers between cable-modem service and telcos' digital subscriber line offerings has narrowed. By one measure (Telecommunications Reports' Online Census), DSL now reaches 42 percent of the U.S. broadband audience. Another study (Leichtman Research Group) puts it in the 35 percent range.
One Washington seer with obvious political objectives, James Glassman of the American Enterprise Institute, predicts the broadband audience will balance out at nearly 50-50 by this time next year.
Of course, dueling prognosticators — or simply contradictory soothsaying — are nothing new. Financially motivated optimists also abound. Investment bank Morgan Stanley predicts that DSL's share will decline toward 23 percent by 2006.
It's not worth asking, "Who don't you believe?" That's because in the long run, most will be wrong. Even if Morgan Stanley guesses correctly, it would have overreached my favorite group of ill-fated seers, namely my broadband panelists at the 2001 National Show. The four participants offered firm assurance that cable modems would forever continue to maintain a 75 percent share of the broadband market.
Sadly, three of the speakers were top executives at companies that disappeared soon thereafter — Excite@Home Corp., High Speed Access Corp. and AT&T Broadband — leaving the fearless forecasters to await the accuracy of their predictions from somewhere else.
Who'd of thought that the fourth panelist that day (then-Road Runner president Jeff King) would be the lone survivor?
Whatever the precise split in today's broadband audience, it is clear that DSL is making strong inroads, thanks in great part to the telephone companies' plodding process, which started with the annihilation of competitive local-exchange carriers and has now moved on to inventive bundling of voice and data packages.
The Adolescent Bells, which predictably move at their own sweet pace, have finally become aggressive about DSL — or what passes for aggressive, according to their definition.
Speaking of definition, their DSL tallies blend residential (including home office users) and small-business customers, complicating a comparative count vis-à-vis cable. Of course, cable's modem customer base also includes a sizable teleworker contingent, and many operators would like to attract more small business clients.
Cable operators are pushing hard to expand their customer base as they increasingly go head-to-head with the telco ventures that are finally cranking up. Insight's third-quarter broadband subscriber growth of 20.5 percent (albeit on a relatively small base) outstripped BellSouth's 15-percent jump and SBC's 13.1-percent gain.
Even Charter Communications Inc., with a starting base of nearly 1 million cable-modem customers, climbed nearly 17 percent during the third quarter, according to Leichtman Research data.
Birds on the wing?
The young broadband industry still has a number of wild cards.
Satellite delivery (now at barely 200,000 homes) remains an intriguing prospect, with SG Cowen Securities analyst Thomas Watts predicting up to 12 percent of broadband customers will link up to high-speed service via satellite within 10 years.
That factors in the stuttering start of StarBand LLC, including a retail rift with Charlie Ergen's EchoStar Communications Corp. — complete with lawsuit — and the uncertain fate of Hughes Network Systems' DirecWay and future SpaceWay systems, as parent Hughes Electronics Corp. is up for sale.
Of course, the satellite broadband market is expected to be largely rural. But an effect is already being felt, seen by some as a built-in time bomb of DBS growth. Satellite customers — both those who have never had cable connections and, especially, customers who have abandoned cable — are prime targets for DSL until — or if — affordable satellite broadband service comes along.
When DBS customers are ready to move from dial-up to high-speed access, they're more likely to turn to a telco provider rather than go, or go back, to cable.
It puts the DirecTV acquisition of Telocity Inc. — a rare surviving CLEC — into stronger perspective. It also helps explain DirecTV's alliance with Experctity, unveiled last week, which will promote the latter's "GoToMyPC" remote-access service to DirecTV DSL subscribers.
How fast to big?
As cable and DSL forces increasingly compete for harder-to-acquire late adopters, the tactics for signing up new customers will affect the market split.
The recent brouhaha about America Online's new broadband assault — with all its cross-fertilization and vague creativity — does not adequately address the consumers' appetites for a new high-speed experience.
Since 80 percent of online customers (heading toward 60 percent) are satisfied with mere dial-up speeds, the formula for broadband remains a mysterious mix of content, applications and pricing.
The vaunted and overused example of South Korea — the current world champion of broadband penetration — merely shows what a subsidized facility can accomplish. DSL customers actually represent only about 25 percent of the country's phone access lines.
In densely populated Hong Kong, the ratio of DSL to total phone access lines is actually 35 percent.
Both, of course, are far great than the 3 percent ratio in the U.S. But in those countries, DSL pricing is also significantly low: less than $25 in South Korea and barely $38 in Hong Kong. U.S. broadband pricing typically ranges from $40 to $60 per month after introductory promotions. And those widely touted foreign figures don't factor in cable broadband service.
Cheaper pricing could accelerate penetration — but inevitably will sink both cable and DSL providers into a service commodity battle of ruinous economics.
Some say 'incredible'
Perhaps the most optimistic outlook of the circuitous broadband rollout came from, of all places, the federal-state joint board on advanced services (an adjunct of the National Association of Regulatory Utility Commissioners).
Where else have you seen the terms "incredible pace" and "extremely strong" to describe broadband rollout?
The study, prepared by the Florida Public Service Commission's Office of Market Monitoring, debunks the complaints about slow rollouts. It almost sounds like an accusation of "irrational exuberance" by cable and DSL promoters.
"Disappointment over the gap in demand may stem from unreasonable expectations mirroring those that fueled the telecommunications boom," the study says. "New technologies are not accepted overnight, especially those requiring some sophistication of knowledge and skill to install and use."
Which brings us back to competitive growth, and the eventual victors in the battle for market share. It sounds like the winners will be the ones who deliver value and appealing applications at the right price.
That's not a myth, but it still remains a challenge — no matter how you count it.
Contributor Gary Arlen is known for his insights into the convergence of media, telecom, content and technology. Gary was founder/editor/publisher of Interactivity Report, TeleServices Report and other influential newsletters; he was the longtime “curmudgeon” columnist for Multichannel News as well as a regular contributor to AdMap, Washington Technology and Telecommunications Reports. He writes regularly about trends and media/marketing for the Consumer Technology Association's i3 magazine plus several blogs. Gary has taught media-focused courses on the adjunct faculties at George Mason University and American University and has guest-lectured at MIT, Harvard, UCLA, University of Southern California and Northwestern University and at countless media, marketing and technology industry events. As President of Arlen Communications LLC, he has provided analyses about the development of applications and services for entertainment, marketing and e-commerce.
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