Broadband Poised for Takeoff

By Ron Miller

The broadband market is set to explode, with access expected to more than double to 46 million-plus households in the United States by 2008, up from 21.5 million at the end of last year. That surge, spurred by increased competition between cable and DSL providers, is forecast in a reported released today by Jupiter Research,

“2003 was the first year we saw coherent competitive messages in the
market,” said Joe Laszlo, senior analyst at Jupiter Research. The telcos and cable operators halfheartedly competed for broadband customers prior to that, he said.

Laszlo added that DSL providers have emphasized price, while cable operators are stressing their connection speeds.

The Jupiter Research report is entitled “The DSL Market Opportunity: Closing the Gap
with Cable Modem Providers.” (Jupiter Research parent Jupitermedia Corp. is also the owner of internetnews.com.)

The report states that 40 percent of all U.S households, a number that
represents half of all online households, will connect to the Internet using
one of these high-speed methods by 2008. However, average prices for broadband
access needs to drop below $40 per month if they are to achieve these lofty
figures.

“Although the price of broadband moved closer to being right in
2003, all service providers must reevaluate the economics of low-cost
broadband offerings to maintain the pace of consumer demand in 2004,” Laszlo
said. The report indicated that the closer the price gets to $29.99 per month, the
more likely dial-up customers will switch. When the price exceeded $40, only
22 percent of dial-up customers indicated interest in switching to
broadband.

Laszlo said that as these broadband providers build customer bases from
numbers in the hundreds of thousands to numbers in the millions, network
owners can begin to take advantage of the economies of scale they achieve and
offer lower prices to consumers. He cautions, however, that “the last thing
broadband providers want is to become a commodity service where consumers
shop on price alone.” Instead, they want differentiate themselves by the
services they offer. He points out, for example, that many consumers are
concerned with security issues, and as such, many providers have begun
bundling firewalls as part of the standard service.

In fact, one factor driving the switch to broadband is increased demand for
rich media service such as music and video content. As demand grows,
broadband providers can use content offerings to differentiate themselves
from the competition.

According to another report from Jupiter Research released
last week titled, “Broadband Distribution Strategies: Uniting Access and
Premium Services to Spur Differentiation,” broadband service providers need
to look at content and service offerings as way to distinguish themselves in
the market. In addition, companies offering premium content could garner
other benefits including increased revenue over time and improved subscriber
loyalty–an important factor as competition increases.

Laszlo sees other areas such as music and gaming as places, providers can
present competitive offerings and consumers may want to shop around. For
example, one company may offer support for Microsoft’s Xbox, while another
might support the online game EverQuest.

While this increased growth doesn’t mark the death knell for dial-up ISPs,
it does, according to Laszlo, likely mark the end of sustained dial-up growth
in the United States.

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