DSL wars come down to a battle of the bundles

Some broadband pricing deals come bundled with complete telephone packages, but are they really a bargain?

Tech Industry
Broadband packages that bundle high-speed Internet access with subscription TV and telephone services are becoming de riguer, but consumers need to double-check the math to make sure a discount on one product translates into a deal overall.

SBC Communications last week sliced its basic DSL package to $19.95 a month--about half the price of most comparable cable broadband offers, and even slightly less than some slower dial-up services, such as America Online.

Careful. Even though that deal leads with one of the lowest DSL prices in the land, the total comes in at more than $70 a month and could wind up costing you more than you otherwise might pay for broadband and phone service. That's because subscribers must also purchase SBC's complete local and long distance phone plan, which costs $48.95 for unlimited local and long distance calling, voicemail, call waiting and other perks.

News.context

What's new:
Telephone and cable companies are bundling broadband with voice, video and wireless services to lure customers.

Bottom line:
Both industries are spending billions to outmatch one another with bigger service bundles. Want a discount? Buy more--a lot more.

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"You're not getting a big discount until you start piling all the (services) in," said Mark Cooper, director of research for the Consumer Federation of America.

In a telecommunications-heavy world, pricing trends highlight a new fact of life, consumer watchdogs warn: To save some money, you may have to spend a great deal more.

Families can now easily shell out more than $100 a month for local and long distance phone plans, subscription TV, pay-per-view, Internet and cellular phone service. New demands in the form of Internet media--music downloads, interactive games, satellite radio and video-on-demand services--promise to push costs, and bundling opportunities, to even greater heights.

The packaging of TV, telephone and broadband services in a single bill highlights growing competition between the Baby Bell phone companies and cable conglomerates. Bundling makes sense for both sides because customers who buy more services are more likely to stick with them in the long haul. And by offering other services such as local and long distance phone calling, cellular plans and cable or satellite TV, consumers can pick the services they need at varying discounts.

But with all of these pricing plans and packages, are consumers getting real savings off their monthly phone or cable bill? It often depends on how much people buy.

Spending money to save money
Indeed, savings increase with more services, but so does the monthly bill.

Take Verizon Communications. The nation's largest phone company currently offers DSL with a download speed of up to 1.5mbps for as low as $29.95 a month for a one-year commitment and an extra voice line. People who buy a $54.95 unlimited local and long distance voice plan get up to 3mbps DSL for the same price and a discount on satellite service from DirecTV for about $37.

Verizon said it will soon introduce "naked DSL," which lets people buy only broadband without forcing them to buy a voice line.

SBC, the nation's second-largest phone company, has aggressively priced its 1.5mbps DSL as low as $26.95, with a basic local phone line costing $10.69 a month. The company is pushing to sell bigger packages, called "Total Connections," that include local and long distance voice calls, a Cingular Wireless plan and DSL, for between $78 and $90 depending on the state of residence. Add satellite TV from the Dish Network, and the bill costs between $108 and $120.

"It's important for us to move quickly so we can bring DSL to market to leapfrog cable and to do so at a reasonable cost," said SBC spokesman Wes Warnock.

Basic, barebones cable TV costs around $15 for Comcast, and up to $40 for more channels such as CNN and Lifetime with Cox. Digital cable, which offers more channels and, in some networks, video-on-demand, runs up to $60 a month in some systems, and even higher when adding premium channels such as HBO, Cinemax and Starz.

Remarkably, few cable systems are budging on their broadband Internet rates despite price competition from DSL. Most cable systems offer up to 3mbps download speeds for $40 to $45 a month, and about $55 for broadband without video. That amounts to more than $60 a month for barebones cable and broadband and more than $100 for digital.

Some cable systems offer phone service as well, for between $30 and $50 a month. That means up to $150 a month for the bundle.

From these estimates, it appears consumers can get more bang for their buck by choosing the Bells, which are trying to encroach on cable's long dominance in the broadband access market.

"Any time you can get more choice in market, it's at least in concept good for consumers," said Rob Sanderson, an equity analyst at American Technology Research. "Any time you can pick and chose your options, there has to be some utility for consumers in having the flexibility to choose."

Money in the bank
That's not to say the Bells are winning the war. Despite higher overall costs, cable companies continue to gain hundreds of thousands of new broadband subscribers every quarter. Most of these gains come from existing video customers adding broadband to their monthly bills.

Comcast, the nation's largest cable provider, added a record 549,100 new broadband customers during the quarter ending Sept. 30. That's up from 472,700 the year before and 327,000 from the previous quarter for a total of more than 6.5 million subscribers. Time Warner Cable added 168,000 last quarter to 3.7 million, while Cox Communications added 184,446, or 32 percent, to reach 2.4 million.

Not to be overshadowed, the Bells have gained DSL subscribers at a steady rate. Most of these gains can be attributed to attractive pricing plans.

SBC, the largest DSL provider, added 402,000 subscribers last quarter for a total of 4.7 million subscribers. Verizon added 309,000 to 3.3 million, BellSouth added 134,000 to 1.9 million, and Qwest Communications gained 102,000 lines to 956,000.

These results may indicate that lower prices and more affordable bundles are helping both sides prevent customer defections, or churn. The Bells are offering incentives for new broadband subscribers from choosing cable, while cable companies are able to keep their customers despite pricing competition.

Why are cable customers choosing a more expensive service rather than switch to better savings? The answer is simple--convenience.

"The selection of who (consumers) choose to provide multiple services seems to be based more on convenience than on price," said Mike Paxton, an analyst at In-Stat/MDR. "Convenience nudges it out a little."

The road to similarity
Cable and the Bells are on a path to become mirror images of each other. SBC, BellSouth and Qwest are planning to invest billions to upgrade their existing copper wires to one day offer Internet-based video streams into the home.

Last month, SBC awarded a $1.7 billion contract to Alcatel for the telecom equipment maker to upgrade its network infrastructure to fiber optic lines to handle more data traffic to serve video. SBC is in trials with Microsoft to use the software giant's digital encoding technology for video as well. Once the service is up and running, SBC will add video to its price packages.

Verizon is planning to offer a video service on its fiber optic lines as early as next year. The company's "Fios" service will pipe 5mbps to 15mbps of data bandwidth into homes and package a video service similar to cable.

The Bells' ambitions are getting cable companies antsy. Cable executives have publicly discussed their need to offer wireless phone service to their customers to remain competitive. Time Warner CEO Richard Parsons last week told investors that the company would explore partnerships and consider acquisitions to get into the business.

Cable giants are on common ground over expanding into cellular. There is already discussion among Comcast, Time Warner Cable, Cox Communications, Charter Communications and Advance/Newhouse Communications to consider how to approach the business, according to one industry source close to the discussions.

In the long run, the war of the bundles may turn out to resemble the 2004 presidential election: strengthen the base and pick away the undecided consumers.

"If (consumers) perceive they got a deal from Verizon, then they won't look any place else," said Verizon spokesman Jim Smith.

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