Study: Broadband penetration slowing

The survey, published by independent think tank Pew Internet & American Life Project, found that high-speed Internet adoption, after growing quickly in the past several years, has been losing steam and is poised to slow even further. During the first six months of 2005, 53 percent of home Internet users said they use a broadband connection, up from only 50 percent during the previous six months.

This is a much slower growth rate than reported for the same periods a year earlier. From November 2003 to May 2004, high-speed Internet penetration grew by 20 percent, from 35 percent of home users in December 2003 to 42 percent in May 2004, according to the Pew data.

Results of the study will be presented at the Telecommunications Policy Research Conference in Arlington, Va., Sept. 23 to Sept. 25.

Pew attributed the slowdown in broadband penetration to a maturing of the market. Early adopters, who are typically savvy about the Internet, well-educated and well-paid, have already signed up for broadband service.

Today's dial-up customers, by contrast, tend to be older adults with lower incomes and educational levels. Most importantly, they do not use the Internet to do much beyond basic Web surfing and e-mailing.

"The low-hanging fruit of early adopters is gone," John Horrigan, director of research at Pew, said Wednesday. "And the remaining dial-up population seems unenthused in terms of the Internet, so mathematically, that makes for a smaller fruitful pool for providers to select from."

At least one analyst agrees, in part, with Pew's analysis. "There's no question that broadband growth will slow over time," said Jim Penhune, an analyst at Strategy Analytics. "But what we're seeing now is providers using aggressive pricing to entice new customers."

DSL service has become available for less than the cost of a dial-up connection only in the past few months. In June, SBC announced a one-year promotion to offer its DSL service for $14.95. Just last month, Verizon Communications followed suit with a slower-speed offering that also costs $14.95. Some experts believe that this could have a significant impact on today's dial-up customers.

"The (telephone companies') challenge is persuading the people plunking along on AOL dial-up to switch to broadband," Penhune said. "And I think the $15 products are just the thing."

Cable companies are also going after these consumers by offering special pricing on "triple play" bundles of service that combine telephone, high-speed broadband access and TV service. Cablevision currently offers a package of all three for $90 per month. Whether dial-up consumers are enticed into subscribing to broadband services is yet to be seen, but it's clear that providers realize that they must change their strategy to win them over.