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Bells wax creative for more Web customers

Desperate to make inroads to the mass Internet market, the big local phone companies are getting creative and offering new services to stay competitive.

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Desperate to make inroads to the mass Internet market, the big local phone companies are getting creative.

SBC Communications today announced plans to merge its consumer Net operations with Internet service provider (ISP) Prodigy. US West intends to deploy high-speed WebTV-like services, gunning for people who have yet to purchase a personal computer.

Once thought to be natural leaders in the Internet access business, the Baby Bells failed to build effective Net services for the mass market. But now the local firms are betting their future on the high-speed Net, and hope this path will help them avoid making the mistakes of the past.

"The Bells have proven they're not going to be the ones to get [high-speed Internet service] to the mass market," Jupiter Communications analyst Zia Daniell Widger said. "They're going to have to do it by partnering with companies with better marketing operations."

For the consumer, this could mean more competition in the Net access business and a variety of easy-to-use alternatives for Web novices, given the target audience of a Net service like Prodigy.

The pressure on local phone companies is growing as AT&T readies its recently acquired cable operations to provide local phone and high-speed Internet service. The Bells hope their own high-speed Net products will help fend off the telecommunications giant and other competitors.

But the trick to date has been attracting the mass-market consumer to these nascent high-speed services.

Demand has been strong for high-speed cable service as well as for digital subscriber line (DSL), which allows voice traffic and Internet data to travel on a single telephone line. But DSL subscriber figures still trail far behind competing cable modem services like Excite@Home and Road Runner. Reports of DSL-related outages have been common.

The Bell companies--particularly SBC--have set ambitious subscriber goals that will help subsidize network upgrades. SBC announced early this month that it will invest $6 billion in DSL services over the next three years.

ISP subscriber numbers "This project will allow us to achieve the kind of growth we're looking for with DSL," said Steve McGaw, SBC's managing director for corporate development, on a conference call this morning. Combining Prodigy and SBC's Internet customers will give the joint venture about 2.2 million subscribers--a substantial base to which the companies can market their high-speed services, executives said.

SBC's other wholesale agreements, such as with America Online, will also help the local firm boost the number of people on its high-speed networks, company officials say.

US West previously signed some wholesale agreements with partner ISPs, but is still betting more on its own marketing power to keep Net traffic flowing though its networks. Executives have said they are wary of allowing the massive brand power of America Online into its region to compete with the US West's own service.

Instead, the local phone firm has made its own high-speed services as consumer-friendly as possible, with a discount DSL service and a new high-speed set-top service for Web access through television.

"A lot of potential customers like the idea of a simplified Web experience," said Joe Zell, president of US West's high-speed data division. "If you're part of the demographic segment that's not a technology adopter, then we're the perfect provider."

But some analysts think the Bells are doomed to slip back to a second-string status in the high-speed Net world, just as they did in the dial-up market.

For example, SBC's deal today doesn't buy the company much more brand power, according to industry consultants Forrester Research.

"I don't how Prodigy helps them move out DSL any faster," Forrester analyst Bruce Kasrel said. "From a consumer standpoint, they are not the brand. It's like General Motors saying they're going to be the official vehicle provider for Budget Rent-a-Car."

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