U.S. Subscribers to Online Services Fall in Q1

The overall number of U.S. customers subscribing to online services has declined, according to Telecommunications Reports International’s Online Census. It’s the first decrease recorded by the quarterly online census in its 21 years in existence.

TR’s Online Census found the number of online household subscribers dropped a slight 0.29 percent during the first quarter of 2001 to slightly less than 68.5 million. The study indicates the drop was due to subscriber accounts lost when the free ISP market saw several companies cease operation in recent months. Subscribers in the free ISP sector plummeted more than 19 percent during the first quarter of 2001.

The number of new users of DSL access also slowed in the first quarter of the year. DSL saw tremendous growth of more than 86 percent during the last quarter of 2000, but the first quarter of 2001 saw growth in subscribers slow to just 2 percent amidst chaos in the DSL market. Verizon, saw 33 percent growth rate to 720,000 subscribers. According to SBC, its number of DSL customers grew from 201,000 to 954,000 from Q1 2000 to Q1 2001.

The beneficiaries of the free ISP and DSL slowdowns were cable modem services and paid dial-up ISPs. TR’s Online Census reported the cable modem market continued to see a strong growth rate of 18 percent during the first quarter while paid dial-up ISP users grew nearly 8 percent.

“During the first quarter, the online industry was faced with several very significant challenges. First, free ISPs could not sustain business and keep even active customers onboard while advertising dried up, and the DSL market, which had been so strongly touted, began to really struggle,” said Amy Fickling, managing editor of TR’s Online Census. “But while growth overall during the first quarter was stagnant, the online market is still showing pockets of growth. Over the past 12 months, it enjoyed growth of 36 percent despite the problems within the DSL and free ISP sectors.”

One year ago, TR’s Online Census found free ISPs basking in some of the strongest growth rates in the online industry. This year, they recorded a 19 percent loss in the number of active subscribers, bringing down the number of free ISP subscribers to 10.26 million. NetZero seems to be the only winner in this market, picking up a number of the no-fee customers abandoned by the shuttered ISPs.

The paid dial-up access market had an overall growth rate of more than 7 percent. These providers now reach 49.6 million consumers. The survey found that most traditional ISPs reported slow growth during the usually booming postholiday online season, but Microsoft’s MSN saw a 25 percent increase to 5,000,000 in its number of subscribers. MSN now is the No. 2 service provider after AOL. Rounding out the top five dial-up ISPs are EarthLink, NetZero and Juno Web, which still includes two large free ISPs.

Cable modem providers have picked up the broadband access market, reporting an 18 percent growth rate during the first quarter and now reaching nearly 5 million subscribers. Road Runner, the No. 2 player in the market after @Home, attributed some of its 63 percent growth rate during the first quarter to the volatility in the DSL market.

The market for Internet access via television saw no growth during the first quarter of 2001, and could decline as the major players shift their focus. Microsoft’s WebTV, long the leader sector, is being phased out in favor of UltimateTV. AOL is also looking at new access alternatives beyond AOL-TV to attract subscribers, including the AOL Plus venture in connection with Hughes Network Systems’ satellite service.

Online Growth by Access Category
Service Category Customers Q1 2001
Paid Dial-Up ISP 49,606,798 7.61%
Free ISPs* 10,260,000 -19.44%
Cable Modems 4,931,419 18.01%
Internet TV 1,204,000 0.0%
DSL 2,404,000 1.97%
Satellite 75,000 n/a
Total 68,481,217 -0.29%
* Active subscribers
Source: TR’s Online Census

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