The regional Bells, which once accused upstart competitors of "cherry picking" the best customers, can now recapture the premium business while dictating prices for DSL service, which delivers high-speed services over traditional copper phone lines.
Theyre not stopping at the boundaries of their regulated service areas. New York-based Verizon Communications is targeting high-density residential buildings in Atlanta, Denver and Phoenix through its Verizon Avenue subsidiary. The new campaign comes as Verizon challenges another regional Bell, SBC Communications, as the leading DSL provider.
As the first quarter ended, Verizon had about 720,000 DSL lines — nearly five times more than it operated in the same period last year. Verizon increased the number of lines that can get the service to 30 million, or 47 percent of its access lines.
Officials at SBC, in San Antonio, claimed 954,000 DSL customers, 201,000 more than in the same period last year. SBC also has ambitious plans to increase its DSL revenue with the second phase of Project Pronto, which uses neighborhood gateways to reach more households.
"Broadband is the foundation for a host of new value-added services, and we will continue to pursue it aggressively," said SBC Chairman Ed Whitacre.
The other Bells, BellSouth and Qwest Communications International, are also pushing new DSL initiatives, despite a softening market. Qwest, whose DSL customer base grew 125 percent since the first quarter of last year, to more than 306,000, said it is making money on DSL.
Qwest CEO Joe Nacchio last week said, "Our only product that doesnt make money is local telephone service. We make money on DSL priced at $39.95 and $42.95 per month. Thats very competitive, maybe too competitive."
BellSouths DSL customer base grew by 88,000 lines in the past year, to a total of 303,000 by the end of the first quarter of this year.
After watching SBC and Internet service provider (ISP) EarthLink boost their prices to nearly $50 per month for DSL service, the nations largest cable company, AT&T, last week followed suit — bumping up prices for high-speed Internet access by 15 percent to $45.95 per month.
"We think the price better reflects the value of the product," said AT&T Broadband spokesman Steve Lang. "Even with the rate hike, its still the best value."
With the shakeout among DSL upstarts, competitive pricing will likely diminish, according to Gary Kim, president of NxGen Data Research. The Bells have vanquished their local competition in the residential DSL market, with no opportunity for niche players until prices approach $70 per month, he said.
The rapid disappearance of competitive carriers such as NorthPoint Communications and the demise of free ISPs led to the first recorded decline in online subscribers in 21 years, according to Telecommunications Reports International.
Despite the shakeout, analysts said they expect healthy growth in broadband services. The Broadband Report, compiled by eMarketer, pegs broadband revenue at $8 billion in 2004.
New Paradigm Resources Group analysts expect residential and business DSL to grow nearly threefold, to $5 billion, within four years.
"The only question is which business models can overcome technical hurdles, deploy DSL cost-effectively and meet the continued growth in demand for broadband?" said Terry Barnich, president of New Paradigm.