Number of U.S. Households Online Grows in Second Quarter

The number of U.S. household customers subscribing to online services reversed its first-quarter decrease and rose 3 percent to 70.7 million subscribers during the second quarter of 2001, according to TR’s Online Census from Telecommunications Reports International (TRI).

Of the six Internet access methods tracked by the survey, five — paid dial-up, DSL, cable modem, Internet TV and satellite — showed increases in subscribers during the second quarter, with the greatest reported increase coming in the nascent satellite category, which increased 52 percent during the quarter, and DSL, which reported a 29.7 percent growth rate. The sixth category, free dial-up access, reported an 11.3 percent decrease in the number of subscribers.

Paid dial-up service showed a modest increase of just over 5 percent for the second quarter, but it remains by far the most popular access method in the United States with more than 52 million subscribers. Things in the dial-up market will get interesting in the coming months, as TRI expects competition to heat up significantly in response to America Online’s rate increase announced in May.

“Microsoft Network has already launched an aggressive marketing campaign to try to win over price-sensitive AOL customers and attract new customers who had been evaluating AOL,” said Amy Fickling, managing editor of TR’s Online Census. “While AOL’s clearly the dominant player in this market, the higher rates could have an impact on future market share, which we’re likely to start seeing as soon as this fall.”

Microsoft Network, the second-largest dial-up ISP, with 5.5 million subscribers, has targeted unhappy AOL customers with a promise that its existing $21.95 subscription rate will stay in effect through 2003, and offered AOL subscribers who switch to Microsoft Network three months of free service.

“Historically, AOL has attracted about a million new subscribers every two months,” Fickling said. “If this pace starts to decline, it could indicate that AOL is struggling to replace customers who have abandoned its services due to the higher subscription price.”

Free dial-up ISPs continue to have problems, with the market shrinking more than 11 percent during the second quarter, to just over 9 million users. The pending merger between Juno Online Services Inc. and Net Zero Inc. is expected to be completed by the end of the year, and would create the nation’s second-largest Internet access provider, United Online, with a combined total of more than 7 million active subscribers, including about 1 million paid subscribers, according to the TRI’s data. Until that happens, NetZero and Juno fall below EarthLink in the list of the top five ISPs. If the free subscribers are factored out of the total subscribers for those two companies, then CompuServe and Prodigy Internet move up to round out the top five.

In the high-speed access market, DSL was the clear market leader during the second quarter, reporting a 30 percent growth rate, while cable modem services stalled at less than 1 percent growth, according to the survey. However, despite this growth, which the report says may have been a correction for late reporting of first-quarter results by some companies, DSL still needs to overcome significant issues that have taken a toll on the industry’s image, including installation problems, shaky corporate financials, lawsuits and the demise of several companies that had served the sector. In response to some of these issues, some providers have begun offering home installation kits to customers, hoping to cut down on the expense and roadblocks to getting customers up on the service.

Additionally, MSN and AOL have continued forays into the high-speed market. Microsoft is now teaming with Qwest to offer DSL in certain markets. AOL also is seeking a nationwide provider for its AOL Plus service, which is currently offered through Verizon and SBC Communications. These three telcos — SBC, Verizon and Qwest — are the largest DSL providers, according to the survey. While DSL showed signs of renewed growth, cable modems did not fare as well during the second quarter, showing less than 1 percent growth, and reaching fewer than 5 million subscribers. @home remains the leader in the cable modem sector, representing 3.3 million subscribers, while Road Runner has 1.4 million subscribers.

The Internet TV market continued to languish with a growth rate of just 1.6 percent, to slightly over 1.1 million subscribers, the survey found, as Microsoft and AOL — the two dominant Internet TV providers — continue to struggle with reinventing their services for this market.

TR’s Online Census also found that while satellite access showed double-digit growth during the quarter, it too, is facing struggles. For example, while many major players, including AOL Time Warner, Juno and EarthLink, provide satellite options, high equipment and installation costs, combined with speed limitations, tend to keep customers away.


Online Growth by Access Technology
Technology Customers Growth in
Q2 2001
Paid Dial-Up ISP 52,186,220 5.2%
Free ISPs
(active subscribers)
9,100,000 -11.3%
Cable Modems 4,935,542 .5%
Internet TV 1,223,000 1.6%
DSL 3,117,000 29.7%
Satellite 114,000 52%
Total 70,675,764 3.2%
Source: Telecommunications Reports International

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