Broader Broadband Plays

Despite recent jolts to broadband deployment, signs are encouraging that demand will pick up. Some big players are optimistic that they can reach critical mass by year's end.

Despite recent jolts to broadband deployment, signs are encouraging that demand will pick up. Some big players are optimistic that they can reach critical mass by years end.

Verizon Communications said last week it has signed up 1 million DSL customers, and is offering a promotional rate of $29.95 per month to reach its stated goal of 1.3 million DSL subscribers by Dec. 31.

"Weve really just seen the run rate skyrocket," said Veronica Pellizzi, Verizons group president for Internet and data service. Verizon stopped marketing DSL after the Sept. 11 terrorist attacks, "but our run rates are back stronger than ever — and we expect them to continue."

Sprint, however, is bowing out of its much-touted Integrated On-Demand Network (ION) initiative to provide fast Internet connections and phone lines. The service never took off as the company had hoped.

Genuity has seen "some softening of the consumer demand for broadband because the economy has softened, but we are very bullish that we will continue to see growth," said James Freeze, Genuitys chief marketing and strategy officer.

On the cable side, [email protected] filed for bankruptcy Sept. 28, leaving its 3.3 million high-speed Internet subscribers in limbo. After announcing it would not accept any new subscribers, [email protected] last week reached accords with cable partners AT&T, Comcast, Cox Communications and Rogers Communications to accept customers while it is in bankruptcy reorganization. AT&T has offered to buy [email protected] assets and continue service to subscribers.

No. 2 cable modem service, AOL Time Warners Road Runner, last week reported 252,000 new subscribers in the third quarter for a total of 1.7 million.

However, most households that are within reach of DSL or cable modems havent opted for the higher-speed lines because they see no compelling reason to do so.

Verizon, for example, has central offices close enough to 32.8 million customers to offer them DSL, but just 1 million have chosen to pay $49.95 per month for Internet access some 10 times faster than dial-up modem.

About 65 million households have cable modem Internet service available to them, and so far, 6 million have opted for it.

"The mass market needs something to pull it," said Adam Guglielmo, a TeleChoice analyst.

That "something" is compelling content, and in the past couple of weeks, large players such as Microsoft have announced intentions to supply it.

The Microsoft Network last week jumped back into the broadband business with a high-speed Internet offering covering more than half of the homes in the U.S. that can get either cable modem or DSL service.

Microsoft intends to partner with BellSouth, SBC Communications, Verizon and others to fight AOL Time Warner for the loyalties of households thinking of upgrading from their dial-up modems. Microsoft knows it cant make huge inroads unless it teams high speeds with compelling content, so the company has been developing partnerships with media companies such as Sony and Vivendi Universal, Microsoft CEO Steve Ballmer said.

Microsofts new Xbox lets customers download and store bandwidth-gobbling games. "That could be a huge spur in households making purchasing decisions about broadband," Guglielmo said.

Jupiter Media Metrix predicted that 40 percent of U.S. households will choose high-speed access by 2006.

Analysts said the price hikes most companies imposed earlier this year werent because their costs were higher, but because demand was strong enough that they could command the higher prices. The bottleneck is due to a shortage of trained personnel to help with installations.

Verizon expects bottlenecks on the DSL side to ease, because installation time has fallen from 22 days earlier this year to 10 days. Thats largely because the process is easier, and 98 percent of new subscribers do it themselves.

Jupiter estimated last week that the number of U.S. households accessing the Web via cable modem, DSL, satellite or fixed wireless will jump to 35.1 million in 2006, from 5.2 million last year.

Senior Writer Max Smetannikov contributed to this report.