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Cable joins broadband price war

Aggressive promotions target phone company rivals as the industry mulls "tiered" services.

Cable companies are upping the ante in a burgeoning broadband price war, offering aggressive promotions aimed squarely at phone company rivals and mulling "tiered" services that tie cost to speed.

In one of the most aggressive pricing moves by a cable company yet, Comcast has quietly begun offering DSL (digital subscriber line) customers in California, Illinois and Maryland 12 months of cable broadband access for $19.95 a month. (Comcast's standard broadband service costs $42.95 a month for cable television subscribers.)

News.context

What's new:
Comcast is offering one year of cable broadband access for $19.95 a month, upping the ante in a burgeoning broadband price war.

Bottom line:
The promotion highlights an increasingly contentious battle with phone companies over the rapidly growing residential broadband market. Internet households are increasingly ditching their dial-up connections, so there is an opportunity to grab market share.

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Cable executives are also warming up to the idea of offering a range of service levels at different prices as a way to appeal to cost-sensitive consumers. Charter Communications already offers tiers with different maximum download speeds, and Cox Communications has signaled its intention to provide similar choices in price and service.

"The cable industry is admitting that they are at least seriously considering offering a lower-priced product," Mark May, an analyst at Kaufman Bros., said.

The cable industry's price maneuvers highlight an increasingly contentious battle with phone companies for the residential broadband market, which is growing rapidly. Households with Internet access are increasingly ditching their dial-up connections and upgrading to faster, always-on broadband services. The main beneficiaries of this trend have been the cable companies and the Bells, who currently offer most of the broadband pipes to the home.

Since first offering broadband in the mid-1990s, cable companies have barely budged from the range of $45 to $55 a month, and have enjoyed little competitive threats from the Bells. However, over the past year the Bells began betting that than cable's faster, but more expensive, service plans. In retaliation, cable companies--including Comcast, Time Warner Cable, Cox Communications and Charter Communications-- by up to double their rates.

These moves have not resulted in a significant widening or narrowing of the market share gap between cable and DSL. Broadband demand continues to rise and both technologies are reporting double-digit gains from last year.

Last quarter, Comcast reported a 39 percent jump in broadband subscribers to 4.9 million, the highest total of any provider. Meanwhile, SBC, the largest DSL provider, reported a 13 percent jump to 3.1 million subscribers.

Still, the cable industry increasingly appears ready to match or beat DSL on price, as well as performance, in the battle for market share.

Don Logan, chairman of Time Warner's Media and Communications division, said in a conference call about the company's October earnings that DSL price cuts have not yet hurt cable. However, he said that discounts could be one "arrow in our quiver" to keep subscriber growth going for its Road Runner cable ISP.

Comcast's promotion for DSL customers, launched quietly on Labor Day, is another sign that the cable industry is warming up discounts as a way to prevent phone companies from making too much headway.

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Comcast's move specifically targets its main adversaries, SBC Communications and Verizon Communications, which offer DSL services in the three states where the promotion is being offered. Both Bells have launched their own DSL discount promotions, with SBC making a more-aggressive $26.95-a-month offer. The price cuts have helped both companies report strong gains in their respective DSL markets and have raised questions about whether cable companies will follow suit.

To qualify, customers have to prove they are DSL customers. But they do not need to pay for Comcast's basic cable video offering, meaning people can pay just $19.95 a month for a year's worth of service, on top of one-time installation fees and $3 a month to lease a modem. Comcast promoted the deal through an e-mail campaign.

"What stands out to me is that it's not about getting new price-sensitive adopters to cable, it's about churning somebody away from DSL," Jim Penhune, an analyst at Strategy Analytics, said.

A Comcast representative said the promotion is an attempt to win back customers who may have been attracted to lower-cost offerings from the Bells. The representative compared this campaign to similar win-back campaigns waged against satellite TV companies, which have threatened cable by luring away customers with cheaper prices and more programming options.

"It's a very competitive space, and we have aggressive offers in the marketplace," Comcast spokeswoman Sarah Eder said, in reference to the broadband offer.

Consumers may be the ultimate winners
With so many promotions coming from so many sides, consumers are spoiled with a wealth of broadband options that are marginally more expensive than standard dial-up access. Some companies are going beyond promotions and offering cheaper, slower tiers as alternative plans.

Comcast's $19.95 lasts 12 months, but reverts back to either $42.95 or $57.95 a month for noncable subscribers. Cablevision, which serves suburban New York, currently offers the first six months for $29.95, but reverts back to its $49.95 rate once that period is up.

Other companies have turned to different price points. Charter Communications offers two general service tiers--a lower-speed 384kbps tier for $29.99 a month and a 2mbps tier for $39.99 a month. Cox Communications has begun offering a lower-priced, slower version for $24.95 to $29.95 a month in some markets, according to reports.

For the DSL providers, their promotional offers may be limited, but they revert back to lower base prices. Verizon offers $29.95 for the first three months, but then changes to its standard $34.95 a month after the period ends. Qwest Communications offers DSL for a monthly rate of $29.95 for the first year, but then charges $34.99 for its lower-speed tier after that. BellSouth charges as low as $29.95 a month, but only if people subscribe to its long-distance and local phone calling plans as well.

Despite SBC's cheap $26.95 introductory offer, customers must pay $49.95 a month after the plan expires. In addition, plans by both the Baby Bells and the cable companies require people subscribe to phone or basic cable TV service.

Analysts said the flurry of deals makes it clear that cable companies like Comcast are getting serious about fighting back against DSL price cuts.

"They're taking their gloves off and saying, 'SBC has been doing this, so we're going to take a shot at them,'" Mike Paxton, an analyst at In-Stat/MDR, said.