More DSL Than Cable Internet Access Sold

For the first time, U.S. local telephone companies have sold more high-speed Internet connections than cable providers have, a milestone that could intensify competition and lower prices.

After taking a leisurely approach to high-speed Internet access for years, phone companies now see broadband as essential to their survival, committing billions of dollars to extend their networks, market their services and offer extras such as free wireless home-networking gear.

The four Baby Bells -- SBC Communications Inc., Verizon Communications Inc., BellSouth Corp. and Qwest Communications International Inc. -- added 1.05 million digital subscriber lines during the first quarter of 2004. Some cable companies have yet to report results, but analysts with Goldman, Sachs & Co. and Deutsche Bank estimate that new DSL lines just barely outsold new high-speed cable connections in the quarter.

There’s some desperation behind the phone companies’ drive for broadband. Revenue from traditional phone service has been declining for years as prices fall and customers switch to wireless phones and other providers. The Baby Bells have tried to compete by bundling services but face numerous competitors. And with the rise of phone service over the Internet, customers who shut off their phone lines for cable broadband may never have a reason to turn them on again.

With DSL, the Baby Bells do not have to open their service to competitors, and they can sell it as an add-on to local service. Thanks to rising demand for high-speed Internet access, DSL has become the anchor that keeps the Baby Bells in many households.

“If you can get DSL into the bundle, the customer will not leave you,” said Verizon Chief Financial Officer Doreen Toben.

Cable companies had a huge head start in the high-speed Internet market, once outselling DSL 2 to 1. But DSL has made gains over the last year, and a recent survey found 26 million cable broadband customers and 20 million DSL customers.

Cable companies typically sell one level of service for about $40 per month. Phone companies offer different levels of service, some with starting prices of $26 a month.

The rise of DSL has provoked little response from cable companies. Comcast Corp., the nation’s largest broadband provider, with 5.7 million subscribers, told analysts last week it was still winning a majority of residential customers in its markets and that it saw no need for a lower-priced, lower-speed service.

Deutsche Bank analyst Viktor Shvetz said cable companies were reluctant to lower prices because broadband subscribers provided as much as 20% of their revenues. But he said cable companies would have to respond “in reasonably short order.”