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Study: Price matters for broadband

Many dial-up households say they won't upgrade to broadband because it's too expensive. Will cable modem services resort to dropping prices to compete with phone companies?

For households that are considering upgrading to broadband, price still matters, according to a new study released Monday.

Sixty-three percent of dial-up households said they would not upgrade to broadband because it's too expensive, according to a survey conducted by The Yankee Group, a market research firm. In addition, one-third of households that have broadband said they would swap out their current broadband service for a cheaper one.

If phone companies, which provide cheaper digital subscriber line (DSL) services, show significant market advances against more expensive cable modem services, the cable companies may resort to dropping prices as well, the study concluded.

"We're not quite over the cusp yet, where everybody feels broadband is a necessity," said Boyd Peterson, an analyst at The Yankee Group. Broadband "is still a luxury item for a lot of markets. That is a positive for marketers of DSL and cable, because people still forget that 80 percent of the U.S. is not on broadband yet."

The study comes at a time when broadband providers--cable and phone companies--are competing heavily for the high-speed home. Cable companies are enjoying a 2-to-1 market lead over phone companies' DSL offerings. But the phone companies are fighting back by slashing DSL prices. Cable companies recently responded by boosting their base speeds.

However, these strategic moves are not just a matter of price vs. speed.

The battle for broadband underscores a broader fight between phone and cable to offer packages of communications and entertainment services to households. Cable has been able to offer broadband and phone service to its core TV programming customers. Phone companies, on the other hand, have frantically tried to defend against the cable threat by reducing DSL prices and striking partnerships with satellite TV companies.

In the end, both phone and cable companies will figure out ways to sell service packages that may seem cheaper on some levels but as a whole seem more profitable for the companies. Price cuts are just one level in an overall marketing war for the growing numbers of homes that are demanding broadband.

"Telecom in general has a long and rich history of price obfuscation," The Yankee Group's Peterson said. "There are a lot of different ways to manipulate bundles to target what's most interesting to consumers and then make money off something else."