The shift from dial-up Internet service to high-speed
access is accelerating, not slowing, according to a new report.
That could be bad news for services like AOL and MSN with mostly dial-up
subscribers, and good news for cable modem and DSL versions of Internet
"Cannibalization of dial-up residential Internet users by broadband is
gaining steam," Craig Moffett, a telecommunications analyst at Sanford C.
Bernstein, said in the research report yesterday.
The common wisdom has been that the shift toward high-speed access would
run into price barriers, as customers balked at steep fees.
But dial-up users are finding more and more reasons and temptations to
switch, ranging from Internet features that require high speeds to discounts
and bundles offered by cable TV and phone companies.
High-speed access accounts for 44 percent of total residential Internet
customers in the United States, compared with 18 percent at the end of 2001.
In the first nine months of this year, the four largest dial-up operators,
including America Online, lost more than 4.3 million subscribers, Moffett said.
That loss was 16 percent greater than in the same period of 2003. "With the
erosion of dial-up still accelerating, there is plenty of room for continued
growth for broadband," Moffett said.
In 2005, Moffett expects 9.6 million new subscribers for broadband service,
compared with an estimated 8.9 million by the end of this year, a 7 percent
jump. And by 2010, he forecasts nearly 83 million customers will have broadband
subscriptions, or nearly 98 percent of the Internet market, compared with 33
million this year.
The fight for those subscribers has intensified.
Cable operators account for about two-thirds of broadband subscribers
today, compared with the one-third held by phone companies, in part because
high-speed service from cable companies became widely available more quickly.
But phone companies have been narrowing the gap as their DSL service becomes
more widely available, as they offer steep discounts and as they bundle
Internet service with phone and satellite TV.
Cable operators have fought back. Cablevision Systems Corp. has offered new
customers a bundle of cable TV, Internet and phone service, which uses
Internet technology, for under $90 per month in the first year. Time Warner
Cable also is rolling out Internet-based phone service.
By 2010, Moffett expects cable to drop to 55 percent of the total
residential broadband market, compared with 40 percent for DSL. The remainder
would be held by other technologies such as Wi-Max, an emerging technology that
aims to provide wireless high-speed Internet service over a radius of several
"Commercial web sites are increasingly being geared to the most web-savvy,
affluent half of the market that is already using broadband connections,"
Moffett said. "In short, dial-up is becoming obsolete."