Who’Ll Go The Distance?
Byline: K. C. NEEL
SBC Communications went on the offensive again last week by dropping DSL prices to goose subscriptions – and cable operators refused to strike back.
Rather than using similar tactics, MSOs are opting instead to keep prices steady while adding features to their broadband products.
But analysts believe cable operators will eventually reevaluate their bundling and pricing strategies to stay competitive. Telcos around the country have slashed their DSL rates over the past several months, and more price-cutting is expected. After reducing its rates twice this year, SBC is hacking its standard DSL service price by $3, to $26.95 a month.
Analysts generally like the fact that MSOs aren’t following the telcos into a price war. Still, cable operators might have to make some moves. They may need to introduce a tiering structure, continue increasing the downstream and upstream speeds of their HSD service and/or include other products in the HSD product bundle – including local telephone service – beginning next year, says UBS analyst Aryeh Bourkoff.
Forrester Research analyst Jed Kolko believes cable’s ability to provide faster speeds will be enough to keep it in the lead. Even so, operators will have to pump the product’s value by adding features and rejiggering bundles, he says.
Merrill Lynch analyst Jessica Reif Cohen views SBC’s latest pricing decision a desperate move to gain DSL customers. But Kolko says deep discounting is a good line of attack that will benefit the telcos long-term. “By reducing their prices,” he says, “they’re sacrificing the short-term revenue hits for long-term subscribers they can sell more services to.”
Telcos have no choice but to cut prices because they can’t compete with cable modem features or speed, Bourkoff argues. Cox Communications bumped its download speeds to 3 Mbps awhile ago. Time Warner Cable, Adelphia Communications and Comcast are doubling their download speeds right now. Charter Communications recently increased its download speeds to 2 Mbps. Cablevision has been offering speeds that average 3.5 Mbps for some time. And RCN Corp., which launched a 3Mbps service over a year ago, is increasing the speed of its cable modem service to 5 Mbps free of charge. The overbuilder is also upgrading its 1.5 Mbps subscribers to 3 Mbps Oct. 15.
“I think we all have been pretty public about not wanting to chase the RBOCs’ tail and get into any price wars,” says Comcast CFO John Alchin. “We have decided a better strategy is differentiating our service with increased speeds and new features. And it’s working. We’re adding subscribers 30% faster now than we did a year ago. If their discounted rate card is having any effect, the pie is getting bigger. They’re not taking customers from us.”
SBC isn’t taking broadband customers away from cable, admits company spokesman Michael Coe. It is luring dial-up customers that want a faster connection but not at cable prices, however. The company, which has been losing landline connections, also believes DSL can be the glue that keeps those customers in the fold. SBC’s deep discounting strategy will continue to be fine-tuned on a regular basis, Coe insists.
SBC is extending DSL’s availability in its service territories – the company is offering DSL in communities with as little as 3,000 homes now – and making it easier to sign up for the service. Except for Comcast, which counts some 4.4 million HSD customers, SBC has the second-highest number of broadband customers, counting 3 million as of Sept. 1, according to Coe. “We’ll continue to look at our pricing strategy and service mixes,” he says. “DSL is a very important product for us and we intend to be successful at delivering it to our customers.”
THE NEXT QUESTION:
*What happens when the broadband pie stops growing and telcos and cable ops must take customers from each other rather than count on growth from dial-up customers migrating to broadband?
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COPYRIGHT 2008 Gale, Cengage Learning