DSL pricing plunges to new low

The average price for DSL service across the U.S. has dropped below the cost of cable broadband service for the first time, according to a study released this month by Current Analysis.

The cost for monthly DSL services fell 2.5% during the second quarter of 2003, reaching a low of $42.24 per month, the study found. Meanwhile, cable broadband service prices declined less than 1% to an average of $42.87 per month. These average prices include promotions such as free or discounted services offered by most ISPs.

The continued price declines for DSL and cable services are important because high monthly fees are the main barriers to widespread adoption of broadband service.

“The No. 1 factor in broadband adoption is price,” says Mark Kersey, senior analyst for broadband and cable at Current Analysis. “The majority of people are still on dial-up services because they think that broadband is not worth the price.”

As an example of how price cuts drive demand for broadband service, Kersey points to SBC’s success in selling its DSL service after the carrier lowered pricing to $29.95 per month.

“SBC has pretty much the lowest broadband prices at $29.95 a month for a one-year contract,” Kersey says. “SBC had its best quarter ever, signing up 304,000 new customers at that price.”

DSL service is becoming more attractive to U.S. households that buy broadband service although it is still dwarfed by cable service. Today, cable service represents 61.5% of broadband subscribers while DSL service accounts for 35.2%. However, cable service providers’ share of the broadband market has dropped from a high of 70% in 2000.

Overall, 20.2 million U.S. households are broadband subscribers, which represents a penetration rate of 19%. Current Analysis predicts the U.S. will reach a 20% adoption rate in the third quarter of this year.

Broadband service availability is no longer an issue for most U.S. households, the study found. Today, 85% of the 105 million U.S. households have access to broadband service although only 19% subscribe.

The Current Analysis study says the ISP industry “has reached a point where slower than expected adoption rates have become a problem of demand rather than one of supply. High monthly fees for broadband services – which are only now starting to come down – and a lack of truly compelling online content that requires a high-speed connection are the biggest factors behind the lack of strong demand for broadband among the nation’s consumers.”

The Current Analysis study did not quantify how U.S. households are using broadband service. But Kersey says that anecdotal evidence suggests “a substantial number of people who telecommute or are extending their work day by accessing their corporate LANs from home.”