Will lower pricing help phone companies hold off domination by cable rivals while they scramble to upgrade their ageing copper networks?
A price war is brewing between phone companies and cable companies, the WSJ reports: Verizon is now floating six free months of DSL service if customers sign up for both phone and Internet service — $45 per month, vs. $65 prior, according to the WSJ. And AT&T is guaranteeing that it won’t increase its prices — which range from $20 to $55 per month — for two years.
Why are the phone companies cutting prices? Because cable companies, which offer faster Internet access, are eating their lunch. Last quarter, some 75% of new broadband subscribers picked cable Internet over service from their phone company, a dramatic shift in a market that used to favour cheaper DSL. Add that there are simply fewer potential customers to sign up — as broadband Internet penetration increases — and the land grab makes sense.
This strategy might work for now — DSL is still fast enough for most Internet users. And any savings could be helpful to many households in a crappy economy. But don’t expect it to work for long, especially if stuff like HD Web video ever takes off; that’s when you’ll need a faster pipe than what many DSL providers can offer. Which is exactly why the two largest DSL providers, Verizon (VZ) and AT&T (T), are pouring billions of dollars into their FiOS and U-Verse network upgrades, which should help them compete better with cable for years to come.
Missing: The second half of the price war — cable companies also cutting rates. The WSJ cites “analysts” who expect cable to be “more aggressive in their own promotions as they compete to retain customers.” But even in New York, where Verizon is rolling FiOS into Time Warner Cable territory, we haven’t seen any dramatic pricing changes yet.
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