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SBC connects with DSL subscribers

The regional telephone company reports that it has more than 1.5 million high-speed Internet access subscribers, courtesy of strong gains in the first quarter.

SBC Communications said Thursday that it has more than 1.5 million high-speed Internet access subscribers, courtesy of strong gains in the first quarter.

The company recorded a net gain of 183,000 digital subscriber lines in the first quarter, a 25 percent jump from the fourth quarter and a 59 percent rise from a year ago. SBC's DSL service now reaches more than 25 million customer locations, the company said in its quarterly results. Morgan Stanley had expected SBC to post a net gain of 150,000 DSL subscribers.

SBC attributed part of the DSL growth to an easier installation process, dropping the number of installation CD-ROMs from two to one and trimming the instruction booklet from 30 pages to a one-page brochure.

Customer service improvements were partly responsible for trimming costs as well. The company cut per-line acquisition costs by 35 percent in 2001 and said it is on target to trim an additional 30 percent from recurring and acquisition costs for 2002.

Although service improvements may have helped, SBC has also benefited from aggressive marketing. The company signed a deal with Yahoo late last year to fight off attempts by America Online and Microsoft to make inroads into the broadband market.

A dial-up version of the SBC Yahoo Service was launched in Connecticut in April, and broadband versions are expected later this year. The companies said last week that they would also target small businesses.

SBC also purchased Prodigy Communications, the country's fourth-largest Internet service provider, last September. Vic Grover, an analyst at Kaufman Brothers, said in a recent research note that SBC's DSL subscribers could be boosted by converting Prodigy dial-up subscribers to DSL and cross-marketing with Yahoo.

On Wednesday, SBC said that it would start selling DSL together with EchoStar Communications' satellite television service, in SBC's continuing battle with cable operators.

SBC may have also benefited from the death of high-speed ISP Excite@Home. Though Excite@Home specialized in broadband cable services, there was speculation that customers of the defunct company might switch to DSL when looking for a new broadband provider.

Imran Khan, senior analyst with The Yankee Group in Boston, said he expects DSL providers to continue to see strong growth, even in the declining economy. A main reason is that there is a large gap between the network of lines companies have built in their territories and the number of subscribers who have signed up to use the service.

"Forty-five to 50 percent of households have DSL available to them, yet only 3 to 4 million have (adopted it.) So while the disconnect exists, you're going to see providers' numbers go up," he said. "Even though they're not deploying in new markets, they still have a lot of availability in existing markets."

Nevertheless, SBC appears to be grabbing growth at the expense of other DSL providers. Covad Communications said Thursday that it had 359,000 lines in service, up 2 percent from the fourth quarter.

And SBC rival Verizon isn't expected to report strong DSL subscriber additions when it reports its first-quarter results.

John Hodulik, an analyst at investment banking firm UBS Warburg, said in a research note that he expects Verizon to report 150,000 DSL net subscribers in the first quarter, bringing the total to 1.35 million. Verizon's pace is expected to be "significantly less than the fourth-quarter net adds of 225,000, largely due to seasonality and a reduction in DSL promotions."

Hodulik expects BellSouth to add 125,000 DSL subscribers, bringing total subscribers to 746,000.