Broadband's bargain hunt

As the market matures, consumers are reaping the benefits of a growing discount war among phone and cable companies.

After five years as a cable modem subscriber, Sushim Mandal is considering switching his broadband connection to a new Verizon Communications service called Fios, which extends a high-speed fiber network directly to consumers' homes.

Mandal, an engineer at Intel, said he's tired of paying a $50 monthly subscription for his cable modem service when on most days he gets only about half the bandwidth for which he is paying. Since cable networks share capacity, heavy usage can diminish overall network performance and cut into the bandwidth of customers like Mandal.

So Mandal, who lives in a suburb of Portland, Ore., plans to switch to the new Fios service, which is under construction in his neighborhood. With download speeds as fast as 30 megabits per second, Fios will provide enough bandwidth for broadband, telephone service and television.

Mandal isn't the only cable broadband customer looking at alternatives. While the vast majority of cable broadband customers say they are satisfied with their current service, they also say they'd be willing to go through the hassle of switching services if they could find a better deal.


What's new:
While cable broadband customers say they are satisfied with their service, they also say they'd be willing to switch services if they could find a better deal.

Bottom line:
Consumers are reaping the benefits of a growing discount war among phone and cable companies.

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There are plenty of bargains to be had. Last month, SBC Communications announced a promotional offer that allows customers to get one year of digital subscriber line service (DSL) for $14.95 per month. And earlier this year, Verizon increased speeds and kept its price of $29.95.

"Cable prices are too high when you look at what you're getting in terms of megabits per dollar," Mandal said.

For their part, cable operators say they don't generally plan to lower prices. Instead, they will continue to focus on improving speeds and expanding content. "Our research indicates that customers are looking for speed first and cost second," said Jeanne Russo, a spokeswoman for Comcast. Russo said that Mandal's situation is unfortunate but that it's not the typical experience of Comcast's customers.

"We want every customer's experience to be a great one," she said. "And for the most part it is. Over 90 percent of our customers say they would recommend our service to a friend or family member."

So far, the phone companies' pricing strategy has helped them gain some market share against their cable competitors. In 2004, DSL had about a 41 percent share of the broadband consumer market, up two percentage points from the year before, due largely to aggressive pricing. Experts expect the trend to continue, and within three to four years subscribers will be evenly split between cable and DSL.

"Other things like speed and customer support are factors, but price will continue to be the big driver in selecting service in the near term," said Jim Penhune, an analyst with Strategy Analytics.

For some, the promotions and price cuts offered by the phone companies are just too good to pass up. Steve Peltz, a systems programmer who lives in Champagne, Ill., says he is perfectly happy with his cable modem service from Insight Communications, a Midwestern provider. Aside from a minor billing snafu when he started the service about a year ago, he said he doesn't have any complaints. But he is still considering switching to SBC's DSL service.

"SBC is at the level where I seriously am considering switching service," he said. "I'm paying about three times (SBC's price) for my cable service for a little bit more speed. So it's something I really have to think about."

Price versus speed
According to a study published by J.D. Power and Associates last September, the biggest gap in customer satisfaction between cable and DSL was based on price. On average, DSL service ranges from $20 to $30 a month before discounts. Prices on cable broadband typically start around $30 to $40 a month and can go as high as $65 a month.

"Our research shows us that customers are looking for overall value," said Bobbi Henson, a spokeswoman for Verizon. "Our focus is on providing a combination of good prices, good speed and excellent content."

Phone companies are also reaching more prospective customers. In 2004, an estimated 56.6 percent of U.S. households had access to both cable and DSL service, according to Jupiter Research. By 2009, dual access should jump to 76 percent.

For the most part, cable operators are fighting back with speed. Comcast raised the download speed of its service again last week to 6 megabits per second for its basic plan and 8mbps for its premium service. Earlier this year, Time Warner raised its download speeds to 5mbps and 8mbps. And cable operators Cox Communications and Adelphia have added a new supercharged tier of service, with download speeds of 16mbps and 15mbps respectively, to compete with Verizon's Fios service. By comparison, an average DSL service provides about 3mbps.

Cable companies also are trying to hold onto customers by bundling high-speed Internet access with television and phone service.

Comcast, for example, plans to offer special features to subscribers of both its broadband and cable television services--perks such as remote recording capability through its portal to allow customers to record television shows on its digital video recorder. The company also plans to integrate caller ID functions with its television service so customers can see on their TVs when someone is calling them.

Phone companies are responding with their own bundled services. Verizon's Fios network will deliver telephony, high-speed Internet and TV service at rates far faster than DSL or even most cable services. SBC and BellSouth are also upgrading their networks by putting fiber closer to customers while adding TV service.

The question, of course, is how long these discounts can last.

"The broadband market is going through the same thing the dial-up market went through about 10 years ago," Penhune said. "Some providers are cutting prices drastically, just like AOL did, to get people on their networks. It will be interesting to see if people stay with the service beyond the promotional period."

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