Commentary: SBC makes a DSL offer you can't refuse

By Jay Pultz, Gartner Analyst

Although SBC Communications' DSL and computer offer is a good promotion, it's not a giveaway.

The normal price for SBC's DSL consumer service is $40 dollars a month,

	See news story: SBC offers PCs to DSL customers

and the promotional contract generates an additional $480 over two years. SBC and Prodigy get a two-year commitment for DSL and Internet services at a modest discount, and Compaq Computer gets about the normal wholesale price for a computer. All three companies benefit from good publicity and the brand loyalty that a two-year commitment is likely to produce.

Customers benefit as well: They get a single billing point (the phone bill), a good midrange computer, a competent ISP, and at least 10 times the average performance of an analog modem. It represents a particularly good deal for customers who don't have a home computer or would like an upgrade or an additional machine.

However, as with any promotion, customers need to understand what they are getting and the length of commitment they are making.

This is certainly not a salvo in a "price war." Although a race is on to launch residential DSL service--and SBC has been among the most aggressive providers in promoting DSL--this deal does not represent a significant price cut for DSL service itself. Essentially, the promotion pays for itself. The profit margin for DSL service is sufficient to accommodate the discount incorporated in this package.

Because the promotion requires a two-year commitment, there may be no discount at all once longer-term prices and installation costs are considered. DSL prices will slowly come down during the next two years (although DSL will still be priced at a premium, compared with dial-up service). By the end of that time, better performance may be available for the same price.

In general, however, the trend for DSL service upgrades will be toward increasing performance rather than lowering price. When the time comes to renew these two-year contracts, SBC expects to guarantee 1.5 Mbps service instead of the 384 Kbps it currently offers.

SBC (which now owns almost half of Prodigy) will also offer value-added services wrapped around the DSL and ISP services it offers now, which will increase the company's revenue and likely more than compensate for any cost it incurs on this promotion or other promotions. Such extra-cost add-on services will include voice- and videoconferencing, home-security services and remote-access services for people working at home.

(For related commentary on the DSL market, see TechRepublic.com--free registration required.)

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