Broadband breakthrough

Michael Feinberg knew he was ready to buy into broadband when navigating the Internet began to seem more like slogging than surfing.

In the course of researching law cases, or downloading music files, the Chicago law student's dial-up Internet service through America Online began consistently to disconnect.

Mr. Feinberg soon found a high-speed antidote. His new modem, acquired from the local cable company, boosted the speed of his Internet service by a factor of 10.

He was able to access the Web immediately, and could talk on the phone while working online. For Feinberg, the service has become an at-home necessity. "I don't have to deal with the hassle of having to load each page every time I need a law case," he says.

Faster Internet service is the main engine driving Americans' relatively quick adoption of broadband, the high-speed transmission of text, audio, and video, normally through cable or telephone lines. More than 15 million households now subscribe to a broadband service – up from 9 million just a year ago and 3.5 million in 2000, according to ARS, a market-research firm in La Jolla, Calif.

Most dial-up web users (about 50 million US households) have waited to update their service because of concerns about price. Yet many holdouts are beginning to switch, spurred by new plans that bundle broadband with other services or offer lower prices for different levels of Internet service.

Despite the availability of broadband services that are now priced at less than $25 a month, providers suspect many interested consumers may wait a few years to upgrade.

Millions of potential customers, experts say, have been turned off by broadband over the past three years after discovering that the service was not available where they lived or was too much of a hassle to install.

Some may also have been confused about differences between broadband's two primary means of distribution: cable and digital-subscriber lines (DSL).

Providers, experts say, now must give people reasons to take a second look.

"It was frustrating for consumers from the beginning," says Ernie Berckstrom, an analyst with market research firm In-Stat/MDR of Scottsdale, Ariz. "The marketing was out in front of what was actually being offered."

Americans' thirst for broadband soared during the late 1990s. But only a fraction of consumers ultimately received service. The problem: Providers could not meet demand.

Cable companies, which often offer both high-speed Internet and digital cable television, often overpromised, experts say. Local telephone companies, which provide high-speed Internet on DSL, did the same.

Consumer interest has recently been reignited because both cable and telephone companies have beefed up their networks to hold more data and reach more customers. "The telcos have gotten their act together," says Mr. Berckstrom.

Telephone companies in particular are more aware of the limitations of their service – speeds slow further away from the companies' central offices. The time to set up service has been cut from about a month, in some cases, to about five business days for both cable and DSL.

Though coverage gaps still exist in suburbia and rural America, about 75 percent of American households can now receive broadband in their homes.

Consumers adoption of broadband no longer hinges on technological capacity. "The market has reached the point where it's no longer an issue of supply, but demand," says Mark Kersey, a broadband analyst with ARS.

Most consumers first look at cost when considering whether to switch to broadband.

Broadband providers have traditionally offered a flat fee for one service plan. But many are beginning to show more flexibility with their pricing.

Covad, a Santa Clara, Calif.-based firm that provides nationwide DSL service, recently began offering four different service with prices that range from $22 to $60 per month. They are called "Quick," "Fast," "Faster," and "Fastest." Quick service is about four times as fast as standard dial-up service. Fastest service is about 25 times as fast.

Cable companies AT&T Broadband, Charter Communications, and Cox Communications have all unveiled tiered pricing in different parts of the country.

The faster services are targeted at those who each day spend hours online, thereby "hogging" bandwidth. The slower, lower-priced services hope to attract price-sensitive consumers who care primarily about sending and receiving e-mail.

"People are accustomed to paying about $25 for Internet access," says Jed Kolko, a consumer technology analyst with Forrester Research in San Francisco. "It will be a lot easier for them to get consumers to switch to faster broadband after they buy in at a lower price."

That logic appears to hold true. Overall, the cost of broadband is on the rise. Cable broadband service cost an average of $44.95 per month in March – a 4 percent hike compared with December. In the same period, DSL prices jumped 1.4 percent, to $51.82, according to ARS.

Less competition is also responsible, experts say. Only 10 companies service about 85 percent of broadband customers nationwide.

That field could become even smaller if federal regulators lift a requirement that local telephone providers give smaller broadband competitors access to their networks. (See story.)

Other companies are drumming up interest by bundling services. Verizon, for example, recently promised a $15 reduction off the standard $50 fee for DSL service to consumers in New York and Massachusetts who already subscribe to two other Verizon services, such as local and long-distance telephone service.

Cox offers a similar break to those who subscribe to its local phone service in Phoenix.

Feinberg, for one, now receives cable television, local and long-distance telephone, and high-speed Internet service for $90 a month through RCN. "I'm saving at least $10 for the Internet," he says.

In addition, more than 80 percent of broadband providers offered free or discounted installation in the first quarter of 2002, according to ARS; 65 percent offered free or discounted modems. The savings can prompt consumers to rush a process that still requires important prep work, experts say.

Before signing up, prospective broadband customers should scrutinize their contracts. Fine print sometimes includes a number of unexpected twists. Among them: a requirement that the customer start receiving additional services, such as premium cable channels; a one-year service contract; and a price increase that kicks in after three months.

Most cable customers must also decide whether to buy or lease a cable modem, which connects the cable line to their computer. A modem costs about $100. Customers can lease them for $5 to $10 a month. Many DSL services offer them for free.

Consumers also should understand the limitations of available services. Cable customers receive broadband service from the same source. When more customers go online, the lines clog and Internet service slows.

Slow surfing speeds have also hurt satellite broadband providers – a wireless option still in its infancy with fewer than half a million subscribers.

Conversely, the speed of DSL service rarely slows during the day. The service may be slower in one community compared with another, however, depending on how many phone lines the central office supports. Also, DSL technology is distance sensitive. The longer a line runs from the phone company to the customer, the poorer the service.

Cable has won more customers than DSL, largely because the industry began offering Internet service much earlier, and because cable providers are more accustomed to sending data into consumers' homes.

The primary reason, however, is price. DSL companies normally charge more than cable competitors because they must maintain individual lines for each customer, rather than a single loop like cable companies.

Millions of consumers might need reasons other than fast Internet access and more, clearer cable channels to subscribe to a broadband service. Some experts point to a shortage of additional types of entertainment accessible over broadband. "In my mind, there's not a lot of compelling content out there," says Kersey.

A bill in Congress might speed the availability of media – such as downloadable music and video – available in digital format, by requiring copyright protections in computers, televisions, and set-top boxes. (See story.)

Last week, federal regulators announced a requirement that all new TVs include tuners that can receiving digital programming. The move indicates that regulators hope to accelerate the spread within consumer electronics of digital technology – of which broadband is the most effective delivery system.