DSL Remains in Broadband Doldrums

North American service providers now count 9.3 million residential broadband Internet subscribers according to Kinetic Strategies Inc., equal to 8.2 percent household penetration.

Cable multiple system operators (MSOs) continue to dominate DSL providers with an estimated 6.4 million cable modem customers in the United States and Canada, equal to 70 percent of the market. DSL providers, on the other hand, served 2.9 million residential subscribers.

As of June 1, 2001, there were 7.6 million residential broadband Internet subscribers in the United States and 1.7 million in Canada. But the Canadian number is equal to 15 percent penetration of Canadian households, double the U.S. penetration rate.

Kinetic Strategies estimates that MSOs added nearly 1 million broadband Internet subscribers in the first quarter of 2001, 76 percent more than the 560,148 added by DSL providers. Compared to the fourth quarter of 2000, aggregate growth in cable modem subscribers was essentially flat, while residential DSL additions dropped by 5 percent.

Among the recent problems faced by DSL providers were price hikes by SBC Communications and EarthLink, which may have contributed to the Q1 slowdown. The shutdown of Northpoint Communications also undermined consumer confidence in DSL services, according to Kinetic Strategies. MSOs served 5.8 million cable modem customers as of March 31, 2001, compared to 2.5 million residential DSL subscribers.

According to a report by Pioneer Consulting, the struggles of the DSL industry are not a reflection of the technology itself, but the growing pains of a young industry.

“Current weakness in DSL markets reflects the growing pains of a nascent industry,” said Paul Kellett, senior director of research at Pioneer Consulting. “Service providers and equipment manufacturers have not yet tapped the full potential of the market, which is poised for a revitalization from the introduction of DSL-enabled value-added services.”

Value-added services (defined as enhancements to a basic DSL access product that are enabled by that product) may help lift the DSL market out of the doldrums. More than 16 million DSL customers will subscribe to upwards of 25 million value-added services by 2005, Pioneer found. Examples of these services include video-on-demand (VOD), voice-over DSL (VoDSL), MPEG music, multiplayer gaming, videoconferencing, broadcast television and virtual private networking (VPN). Pioneer estimates that value-added services represent a market opportunity varying from $15.8 billion to $26.6 billion per year, depending on pricing selected by service providers.

“Each of the value-added services mentioned in the report will generate considerable interest among subscribers. However, VPN services will clearly lead the pack in terms of revenue and number of subscribers,” said Michael Lowe, senior market analyst on emerging broadband research at Pioneer Consulting. “This is because VPN services have become so important to the operations of many businesses where other services will be seen as more of a luxury. It is important to note, though, that many of these services will be delivered in the form of a bundle.”

North American Residential Broadband Market
DSL Cable Total
Subscribers as of 6/1/01 2,913,636 6,450,916 9,364,552
Subscribers as of 3/31/01 2,543,938 5,800,103 8,344,041
Q1-01 Subscriber Additions 560,148 986,081 1,546,229
Q1-01 Average Adds/Week 43,088 75,852 118,941
Source: Kinetic Strategies Inc.

Related reading