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DSL price war to threaten cable's crown?

Lower digital subscriber line prices could pose a serious challenge to the cable industry's hammerlock on the U.S. market for high-speed Net access, financial analysts say.

Lower DSL prices could pose a serious challenge to the cable industry's hammerlock on the U.S. market for high-speed Internet access, according to financial analysts.

Speculation about a broadband price war was sparked last week with reports that Verizon plans to slash its DSL (digital subscriber line) prices by 30 percent, to $34.95 a month. That would undercut current cable broadband prices by between $10 and $15 a month and turn DSL into an expensive money loser for Verizon.

But it could also help fill out anemic DSL subscriber rolls for the phone company, which has struggled to make inroads against cable companies in the broadband market.

Verizon's DSL competitors, BellSouth, Qwest Communications and SBC Communications, all declined comment. Verizon itself has yet to formally comment on the new prices. However, it's already advertising the new plans on its Web site.

"Verizon's agenda seems to be not only to increase its share versus cable, but (in general) appears to be to accelerate migration of dial-up customers to high-speed," Merrill Lynch analysts wrote in a research note to clients. And Prudential Financial analysts wrote that "pricing competition for broadband is clearly accelerating overall."

About 16 million U.S. households get some form of high-speed Web access. Most, about 10 million, get it from cable companies, which have until recently have been regarded as offering better service for about the same price as DSL providers such as Verizon.

Lower DSL pricing could also hurt dial-up services such as AOL Time Warner's America Online, which charges $23.90 a month for its flagship premium service. The world's largest Internet service provider has seen subscriber numbers fall off slightly in recent quarters from a high of 34 million, as customers migrate to discount services such as United Online or to high-speed providers, including AOL Time Warner's RoadRunner high-speed cable service.

AOL also offers its own high-speed service, costing $54.95 a month. In addition, it is hoping to lure customers from other high-speed providers by way of its $14.95 a month "bring your own access" product, which includes features such as exclusive content.

Verizon's price cuts would leave the phone company with a severe financial handicap if the expected explosion of new customers fails to materialize. Analysts say Verizon would be earning dramatically less per DSL customer than it used to, meaning it would need to sell services to many more people to make any discernible profits.

Financial analysts are already expecting a flood of new customers for Verizon, with Prudential Financial, Merrill Lynch and UBS Warburg analysts all upping their estimates on the number of new customers Verizon will add this quarter. The analysts also expect other major telephone companies to answer with their own price cuts.