Broadband Poised for Takeoff

By Ron Miller The broadband market is set to explode, with access expected to more than double to 46 million-plus households in the United States by 2008, up from 21.5 million at the end of last year. That surge, spurred by increased competition between cable and DSL providers, is forecast in a report released by Jupiter Research (a unit of this site’s corporate parent).

“2003 was the first year we saw coherent competitive messages in the market,” said Joe Laszlo, senior analyst at Jupiter Research. “The telcos and cable operators halfheartedly competed for broadband customers prior to that,” he said.

Laszlo added that DSL providers have emphasized price, while cable operators are stressing their connection speeds.

The Jupiter Research report is entitled “The DSL Market Opportunity: Closing the Gap with Cable Modem Providers.”

The report states that 40 percent of all U.S households, a number that represents half of all online households, will connect to the Internet using one of these high-speed methods by 2008. However, average prices for broadband access needs to drop below $40 per month if they are to achieve these lofty figures.

“Although the price of broadband moved closer to being right in 2003, all service providers must reevaluate the economics of low-cost broadband offerings to maintain the pace of consumer demand in 2004,” Laszlo said. The report indicated that the closer the price gets to $29.99 per month, the more likely dial-up customers will switch. When the price exceeded $40, only 22 percent of dial-up customers indicated interest in switching to broadband.

Laszlo said that as these broadband providers build customer bases from numbers in the hundreds of thousands to numbers in the millions, network owners can begin to take advantage of the economies of scale they achieve and offer lower prices to consumers. He cautions, however, that “the last thing broadband providers want is to become a commodity service where consumers shop on price alone.” Instead, they want differentiate themselves by the services they offer. He points out, for example, that many consumers are concerned with security issues, and as such, many providers have begun bundling firewalls as part of the standard service.

In fact, one factor driving the switch to broadband is increased demand for rich media service such as music and video content. As demand grows, broadband providers can use content offerings to differentiate themselves from the competition.

According to another report from Jupiter Research titled, “Broadband Distribution Strategies: Uniting Access and Premium Services to Spur Differentiation,” broadband service providers need to look at content and service offerings as way to distinguish themselves in the market. In addition, companies offering premium content could garner other benefits including increased revenue over time and improved subscriber loyalty – an important factor as competition increases.

Laszlo sees other areas such as music and gaming as places, providers can present competitive offerings and consumers may want to shop around. For example, one company may offer support for Microsoft’s Xbox, while another might support the online game EverQuest.

While this increased growth doesn’t mark the death knell for dial-up ISPs, it does, according to Laszlo, likely mark the end of sustained dial-up growth in the United States.