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BellSouth aims at businesses with DSL

The company plans to offer new broadband Internet services, joining the pack of Net service providers that are trying to win higher-paying business customers.

BellSouth is preparing to launch a new line of DSL services for businesses Monday, targeting a market that other broadband providers are already wrangling over. But the company could have trouble upgrading small businesses that are content to use cheaper broadband services.

SBC Communications, Covad and Verizon Communications have been offering similar services to businesses for some time, and SBC recently picked up its drive to attract business customers by teaming up with Yahoo. Business customers are attractive to broadband companies since they are willing to pay more for services.

"Margins are always better with business customers," said Rich Wonders, director of broadband marketing for BellSouth. Though the company has increased its DSL (digital subscriber line) customers from 620,000 at the end of the fourth quarter to 729,000 at the end of the first quarter, BellSouth wants to increase its mix of business customers, he said. The balance is currently about 80 percent residential and 20 percent business.

The company plans to reach 1.1 million customers with DSL by the end of the year and is betting that its new services will entice current business users to upgrade and that it will attract new customers.

BellSouth already caters two DSL services to businesses. Its basic service sells for $79.95, while its higher-end service offers static IP addresses and costs $119.95 and up, depending on the number of addresses. Both offer 1.5MB downstream and 256K upstream speeds.

As of Monday, the company will offer two new services. One will provide 384K downstream and upstream speeds and will cost $199.95; it will improve functions like desktop video conferencing and distance learning by offering more consistent speeds than its current services, the company said. The other, $219.95, will offer 768K downstream speeds as well as 512K upstream speeds, which are intended for business customers with more intense multimedia demands. All options include five e-mail addresses and a backup e-mail account with 20 hours of free access.

Competing with self
The move to tiered services--offering a variety of speeds at different costs--has been a trend among DSL providers and is also being quietly implemented by cable companies.

BellSouth's "price points" are expensive compared with those of Verizon, which offers a Premium Plus service of 384K downstream and upstream speeds for $79.95 a month, and a Professional Plus service with 1.5MB downstream and 384K upstream speeds for $89.95 a month. But Verizon doesn't offer the other features tailored toward businesses, and it charges a $200 termination fee if customers cancel within a certain time frame.

But analysts say the game is not just about price and speed. "Companies need to figure out what perks and services are going to entice business customers to pay more. It's not about speed alone," said analyst Joe Lazlo from research firm Jupiter Media Metrix.

But some potential business clients may not see any reason to pay more for peripheral services, analysts say. DSL companies like BellSouth have a challenge ahead of them in competing with their own, lower priced offerings.

"There are a tremendous amount of businesses out there using residential DSL and cable-grade modem services; for a lot of companies, that's sufficient right now," Yankee Group analyst Mike Lauricella said. "BellSouth is going to have to worry about the perception of many businesses that they're just trying to overcharge for residential-type services. There's a lack of understanding about what real business-class service is," he added.

"Consumer-grade services are fast enough for most smaller businesses," Lazlo said.

There's also a danger that they could cannibalize their own business, Lazlo said. BellSouth has around 250,000 customers in big business using dedicated access lines such as T1 lines, which cost over $700, he said, and several of them could be enticed by the value of the new DSL services.

BellSouth and others are forging ahead with DSL offers because they have to, he added. "There's a lot of competitive pressure from companies like Covad," Lazlo said.