Broadband Connections Show Considerable Growth

While the proponents of the Tauzin-Dingell legislation make their arguments today that the only way to spur broadband growth in America is to allow the Regional Bell Operating Companies (RBOC) to close their DSL networks in a manner similar to cable companies, Telecommunications Reports International (TRI) is issuing a report saying providers of broadband Internet access, including cable modem and DSL connections, closed 2001 with significant gains.

The big winners? The regional Bells and cable operators.

Overall, the online access market showed an anemic growth of barely one percent, growing from about 68.6 million users at the start of 2001 to 69.3 million by the close of the year, according to TR’s Online Census fourth quarter results. This compares to a more than 52-percent growth rate for 2000.

However, despite the turmoil of the @Home collapse, the report found the number of users signing on for cable modem service increased more than 58 percent, from nearly 4.2 million to more than 6.6 million during 2001. DSL also saw significant gains in customers during 2001, from nearly 2.4 million to more than 3.9 million — an increase of 68 percent — according to the survey.

“Despite the bleak growth for the industry overall in 2001, there were remarkable strides made in the broadband market, with DSL and cable modem access methods combined recording a 62-percent growth rate for the year, and now accounting for slightly more than 15 percent of the overall online market,” said Amy Fickling, managing editor of the Washington, D.C.-based TR’s Online Census. “Given the current economy and the fact that both of these sectors saw some difficulties in 2001, most notably the closing of one of the largest cable modem providers and the continued struggles DSL operators are having in rolling out their services, it’s apparent a broad group of customers have an interest in high-speed service.”

The growth in cable and DSL broadband service came at the expense of traditional dial-up services with ISP’s seeing their first-ever year-over-year decline in number of users.

During 2001, the free, ad-supported ISP market lost more than 10 million subscribers, declining from more than 14.8 million to just 4.1 million customers by the end of the fourth quarter. Most ISPs offering a free service either closed or changed to a fee-based structure during 2001 as it became increasingly evident that this ad-supported model could not bring in the revenues required to make it a viable option.

As a result, United Online — which includes Juno and NetZero — now remains the only significant ISP offering a free service option.

Paid dial-up ISPs did continue to report growth during 2001, with an increase of 18 percent for the year. While this remains the most popular access method, with nearly 54.5 million subscribers and 80 percent of the overall online access market, its growth has slowed significantly, with just a two-percent increase reported during the fourth quarter of 2001.

Dulles, Va.-based America Online, with 33.2 million customers registered by the end of the year, continues to be the dominant dial-up ISP. However, MSN Internet Access, the second-largest paid dial-up ISP, reported the strongest growth in customers for the fourth quarter, up 18 percent to 7.7 million. Rounding out the top five-paid dial-up ISPs are EarthLink, CompuServe and Prodigy Internet.

Prodigy reported its customer base declined more than nine percent during the quarter, while EarthLink and CompuServe reported no growth in the number of users during the quarter.

For the fourth quarter of 2001, TR’s Online Census measured an overall growth rate of just over two percent. While a sluggish rate compared to the same period last year, it is better than the nearly four-percent decline in new customers reported during the third quarter of 2001.

During the fourth quarter, the growth of the DSL market was almost 13 percent — showing signs of some slowing compared to previous quarters, but still remaining one of the growth areas for online access.

The two dominant DSL providers are SBC and Verizon, capturing more than 2.5 million of the overall 3.9 million DSL customers reported for the fourth quarter.

According to the report, one emerging trend is the focus, particularly among the DSL operators, to bundle access with content. For example, many of the Bell companies are stepping up alliances with AOL and Microsoft Network, which will give them prepackaged content. Qwest and MSN also are developing a special portal for Qwest DSL customers. Similarly, SBC and Yahoo! have announced plans to launch a co-branded broadband ISP by mid-2002.

“While the broadband sectors continue to show strong growth, the overall online market is not growing significantly,” said Fickling. “As a result, even broadband providers recognize they’re going to have to look at ways, such as offering premium services, to attract new customers and to boost revenue per subscriber.”

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