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Commentary: Surviving the DSL price drop

Consumers, bring-your-own-access providers and cable companies--not Verizon--will be the winners of the price war.

Commentary: Surviving the DSL price drop
By Forrester Research
Special to CNET News.com
May 9, 2003, 1:30PM PT

By Jed Kolko, Principal Analyst

Consumers, bring-your-own-access providers and cable companies--not Verizon Communications--will be the winners of the price war.

Last week, Verizon dropped the price of digital subscriber line (DSL) service to $34.95 per month for new customers, below the $40 to $50 range that most cable and DSL broadband providers charge. Unlike low-cost broadband offers from Qwest Communications International and Cox Communications, Verizon's discounted service gives consumers today's standard broadband speeds. With the continued rollout of cable and DSL intensifying competition, Verizon's move will spark a price war. Who'll win?

• Consumers--who get the cheaper broadband for which they're begging. Cost is why 57 percent of dial-up households reject broadband. But at $34.95, broadband is cheaper than the cost of a dedicated phone line and low-cost dial-up from NetZero. And with consumer satisfaction now equal to that of cable, DSL is no longer a second-class broadband option.

• BYOA providers--which will sell more add-on services. America Online, MSN and Yahoo are offering bring-your-own-access services: exclusive content and enhanced applications for $5 to $15 per month on top of the regular broadband access charge. They win on two counts. First, falling


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broadband prices give BYOA providers a larger pool of broadband users to tap. Second, as low-cost broadband users feel that they have a bit more to spend on add-on services, BYOA providers will pick up some of the revenue that Verizon loses.

• Cable companies--which will outlast the telcos in a broadband price war. With already low broadband margins, how will multisystem operators and telephone companies survive? By more aggressively selling add-on services to existing broadband customers. Cable companies have a wider range of entertainment applications and content that can be packaged with higher-tiered broadband service. And their experience with marketing premium channels on the television side will give them the edge in selling add-on bundles.

© 2003, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.