SBC Communications, Verizon Cut DSL Prices to Lure Internet Customers.

By Sanford Nowlin, San Antonio Express-News Knight Ridder/Tribune Business News

Jun. 11--Phone companies, eager to get a leg up on their cable industry competitors, have been slashing rates for speedy DSL Internet access almost as fast as their long-distance prices.

San Antonio-based SBC Communications Inc. last week dropped its consumer DSL price to $29.95 a month from $34.95 -- provided customers are willing to sign a one-year service contract.

And New York's Verizon Communications last month cut its residential DSL price by $10 to $34.95 a month. It also offers a $29.95 rate for customers who buy wireless, local and long-distance service from the company.

"Consumers don't really see a lot of technical differences between DSL and cable modem service," said Imran Khan, who tracks consumer broadband service for San Jose-based research firm Frost & Sullivan. "So, phone companies are now choosing to compete on a price." DSL providers have been trying to catch up with cable carriers, who have dominated the consumer broadband market.

As of March 2003, 21 million broadband subscribers accessed the Web via cable modems, while only 9 million used DSL, according to the Pew Internet and American Life Project.

Phone companies want to narrow that gap, because owning the broadband connection to consumers' homes is vital to their survival, analysts said. DSL eventually will let consumers access a raft of services including movies on demand, games and low-cost or free long distance calls.

"It's critical that (phone companies) own the DSL pipe to the consumer's home, because everything's ultimately going to be going through that pipe," said Pat Comack, telecom analyst for brokerage Guzman & Co. in Miami.

"I think at the end of the day, and we're talking long term here, the only revenue these companies will get may be from DSL subscriptions."

Near term, phone companies want broadband to compensate for their lagging voice businesses. Under current telecom law, they're required to share their phone lines with competitors at discounted rates, which has meant less revenue from traditional phone service.

"DSL is a growth opportunity," said Ed Cholerton, SBC's vice president for Internet product management. "Our ability to grow our voice business has been severely hemmed in."

So far, the price-slashing approach seems to be working for SBC, the nation's leading DSL provider. Its broadband sales have for grown five consecutive quarters, and -- unlike many phone carriers -- new installations of its service are running almost neck-and-neck with cable across its 13-state service territory, officials said.

While some analysts predict cable companies will be forced to offer deep discounts to respond to the phone companies' new pricing, a spokesman for Time Warner, San Antonio's largest cable provider, said his company has no immediate plans to slash rates.

Time Warner charges $44.95 a month for its Road Runner cable modem service but discounts the price for customers who also subscribe to some of its cable television packages. The company maintains its service is faster than that of SBC's $29.95-a-month offering.

"Consumers realize they are getting a better value for their dollar with Road Runner," spokesman Jon Gary Herrera said. "We continue to see a steady stream of interest and installations of our product."

Does it make sense for phone companies like SBC, who already make thin profit margins on DSL, to hack away at their prices to win market share?

Sure, they say.

Phone companies launched consumer DSL in the late '90s at prices of up to $70 a month, but officials said they've since cut the costs of service.

Also, most phone carriers, SBC included, require customers to sign one-year contracts to take advantage of their special offers. Keeping them around that long allows the companies to recoup their investment, industry experts said.

"Their objective is to catch the customer first, even if they have to sacrifice some profitability," analyst Khan said. "Then a year or eight months later, you start to upsell them to a faster speed or convince them to sign up for some other services."

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(c) 2003, San Antonio Express-News. Distributed by Knight Ridder/Tribune Business News.

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