Broadband Prices Are Up; Adoption Rates Are Down

Rates for consumer broadband Internet service rose steadily throughout 2001, climbing to their highest levels on record by the end of the year, according to ARS, Inc.. And it may not be a coincidence that the number of broadband subscribers isn’t growing as fast as it once was.

Cable broadband prices rose 12 percent in 2001, from an average of $39.40 per month in January 2001 to an average of $44.22 per month in December, ARS found. Basic ADSL monthly prices increased 10 percent, from an average of $47.18 in January to an average of $51.67 in December. ARS tracked basic ADSL service because it is generally a DSL service provider’s lowest bandwidth offering and is the most popular flavor of DSL among residential users.

“These findings continue an upward trend in consumer broadband prices that ARS first quantified last fall,” said Mark Kersey, broadband and cable industry analyst at ARS. “The economic downturn, which has resulted in a tightening of the financial markets, has led to consolidation in the broadband industry. This consolidation has left broadband consumers with fewer choices and, ultimately, higher monthly prices. We expect that this trend of increasing prices will hamper the widespread adoption of broadband services and that the vast majority of users will continue to access the Internet via dial-up connections for the foreseeable future.”

And consolidate they did. ARS found that 46 percent of consumer DSL providers it tracked (including ISPs reselling DSL services) that provided service in January 2001 were bankrupt, acquired or otherwise out of the DSL business by December 2001.

As for the increasing prices, 76 percent of the industry’s consumer broadband service providers offered services both in January 2001 and in December 2001 increased their monthly rates. When factoring in broadband providers that raised their rates at the beginning of January 2002, that number rises to 83 percent. Sixty-five percent of all consumer broadband service offerings had higher monthly rates in December 2001 than in January 2001. When factoring in broadband providers that raised their rates at the beginning of January 2002, that number rises to 70 percent.

Broadband Subscriber Growth
(from previous quarter)
Q301 14.2%
Q201 14.9%
Q101 25.8%
Q400 34.1%
Q300 34.2%
Q200 34.3%
Q100 39.5%
Source: ARS, Inc.

There is some evidence this is taking a toll on subscriber numbers. ARS found that the number of total broadband subscribers in the United States increased just 14.2 percent in the third quarter of 2001 from the second quarter of 2001, the smallest quarterly increase since ARS began tracking such data.

By contrast, total subscribers in the second quarter increased 14.9 percent from the first quarter, while total subscribers in the first quarter increased 25.8 percent from those in the fourth quarter of 2000. Overall, broadband subscriber growth rates have decreased in every quarter over the past two years.

“These data demonstrate that the combination of the economic downturn, rising broadband prices and fewer broadband service provider choices for consumers is having a marked effect on broadband subscriber growth,” Kersey said.

According to research commissioned by Venture Strategy Partners, while nearly 76 percent of consumers are aware of high-speed Internet access, only 14 percent of consumers currently have high-speed Internet access at home. Venture Strategy Partners’ Consumer Technology Behavior Index found that online consumers are spending more time on the Internet that a year ago, averaging 9.4 hours a week, but still struggle with dial-up modems. However, nearly one third of those non high-speed users say they are highly likely to subscribe within the next eight months.

Joanna Gallanter, founder and managing partner of Venture Strategy Partners, said the demand for faster access is driven in part by younger and more tech-savvy consumers who are seeking the convenience of being online and able to talk on the phone at the same time and the ability to download streaming video and music, among other services.

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