SBC Communications Inc. , the second-largest U.S. telecommunications
company, plans to slash its price for high-speed Internet service by
25 percent, upping the ante in its rivalry with cable competitors.
SBC said on Wednesday it would offer broadband service for $14.95 per
month to new customers who sign up online, $5 less than its previous
lowest price. The deal, which requires a one-year contract, makes SBC
competitive with many dial-up Internet services and is among the
lowest prices for broadband in the United States.
Executives at SBC say they have a two- to three-year window to add as
many digital subscriber lines as possible, before cable companies
complete their rollout of telephone services and pursue SBC customers
with voice, video and data packages.
"It's about market share," said SBC Chairman and Chief Executive
Edward Whitacre in an interview last Thursday with Reuters. "The
sooner we get there and the bigger piece of market we get, the better
off we are. It's essentially us and the cable companies vying for
that."
SBC added 504,000 DSL lines in the first quarter of this year, a
record increase for the company, but Whitacre had asked executives if
it was possible to add 1 million a quarter, a level he says is
probably not realistic today.
While its first-quarter growth was a record, SBC's 5.6 million DSL
lines are equal to about 11 percent of its total phone lines.
"What we find is if you sell DSL, the customer just doesn't churn,"
said SBC Chief Operating Officer Randall Stephenson in an interview
last week, referring to the rate of customer turnover.
"Once you get them, you've got them," Stephenson added. "It's very
important to us to get out ahead of the game and get broadband
deployed to every household we can get it deployed in."
Cable companies hold about 59 percent of the U.S. broadband market,
due to an earlier start in launching high-speed Internet services to
consumers. But telephone companies have been closing the gap over the
past year, using lower prices and bundled discounts to add more
broadband customers.
Most U.S. cable broadband services cost at least $30 per month, but
are usually sold with three- or six-month introductory offers of $20
per month. Those cable lines typically offer higher download rates
than competing DSL service.
"While we do not expect this pricing strategy to be implemented across
the industry, SBC's move may force the cable (companies) to get more
aggressive," UBS analyst John Hodulik said in a research note.
SBC offers DSL service to about 80 percent of the homes in its
territory, and Stephenson said the company would try to reach 90
percent within the next 12 to 18 months. SBC executives said the sales
push would not necessarily compress margins on DSL service, as
handling orders online lowers costs.
Banc of America analyst David Barden said SBC has been the most
aggressive of the Baby Bells in pricing, targeting market share gains
at the expense of some short-term profits.
"The strategy has led SBC to generate faster (long distance) and DSL
sub gains, and faster revenue growth than peers, but at the cost of
the lowest margins in the sector," Barden said in a note.
Shares of SBC fell 8 cents to $23.30 in midday trading on the New York
Stock Exchange.
Copyright 2005 Reuters Limited.
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[TELECOM Digest Editor's Note: This suggestion by SBC that they may
lower their DSL rates is all well and good, but can they be trusted
to actually hold to the new rates and not do some gimmicks with a
few months of lower prices then dramatic increases a few months
later? My past experiences with SBC have not been at all favorable.
They give you a lot of double-talk and their bills are _very_
confusing with all the added fees they put in. I'll probably just
stick with cable which has always worked out very well. PAT]
Lisa Minter (lisa_minter2001@yahoo.com)