CABLE SHRUGS OFF DSL RATE CUTS

The Bell companies' drastic rate cuts on DSL service left cable competitors scratching their heads, but so far none has made any countermoves. Industry analysts, however, contend that it's only a matter of time before the increasingly competitive market forces multiple systems operators to drive down their cable broadband prices.

Addressing Verizon's and SBC's price moves in their quarterly earnings calls last week, many MSOs downplayed the $35 per month DSL offers — a rate that undercuts the $45 to $60 monthly charge for most cable broadband — saying that many of the RBOCs' new pricing schemes were promotional and had strings attached.

“We have some questions to the sustainability and profitability of our competitors' actions here,” said Jim Robbins, CEO of Cox Communications. “We're not experts on [the RBOCs'] economics. We know what our customers want, and we don't believe a change of strategy is necessary right now.”

Many believe that even with falling per-port prices for DSL equipment, the new pricing will lead to financial losses. However, Verizon and SBC will try to offset that by bundling long-distance services and premium broadband content and applications (see story on page 6).

Verizon fully expects the price of the pipe itself to fall in the next year as it becomes commoditized, but the carrier plans to begin offering premium packages featuring exclusive video and multimedia services to keep its revenues up, said Mike Poling, vice president of portal management for Verizon Online. “We have to move beyond just offering a fast connection and an e-mail account,” Poling said. “This industry can't keep charging that high of a cost for only broadband access.”

The $35 figure may not be the bottom pricing rung, either. Atlantic-ACM analyst Judy Reed Smith said SBC is planning a further price drop to $25 a month, and that Qwest is already offering a bare-bones access service for less than $30.

Despite the advantages the MSOs have in bundling broadband with cable programming, price pressure from RBOCs may force them to take action. They may not cut prices drastically, but the MSOs have a lot more options than the RBOCs, said Cynthia Brumfield, president of Broadband Intelligence.

Brumfield pointed out that Verizon ended its tiered service plan, bringing most of its customers to its full 1.5 Mb/s service, the upper end of ADSL's current capabilities. The MSOs could easily up the bandwidth they offer customers as well as come out with more competitive video, broadband and IP telephony packages, she said. “The cable providers have a lot more tools in their belt,” Brumfield said. “The phone companies just have one big tool, price, and they just used it.”