Growth of broadband Internet service still slow: New York Times
Published Dec. 9, 2002
Remember all the talk about the broadband revolution? It is turning out to be a slow evolution, at best.
Only about 15 percent of households in the United States currently subscribe to broadband service --or fast Internet access --despite the fact that 70 percent of households have the technical option of doing so. And analysts do not expect the majority of homes to have broadband access anytime for at least five years.
That means any company, whether America Online or any other Internet business, cannot expect to base a mass-market business on broadband any time soon.
"We're working with a model of broadband adoption that is long and steady, rather than a big revolutionary pop," said Daryl Schoolar, senior analyst at the research firm of InStat/MDR.
So far, a crucial limit on demand has been price. Whether provided by the telephone company or the cable company, broadband costs about
$40 to $50 a month --too steep, evidently, for a large contingent of Internet users who are not convinced of the value of faster Web connections. And many, presumably, are deterred by horror stories of how difficult it can sometimes be to have broadband service installed.
To be sure, businesses and many affluent households have adopted broadband at a rapid pace, which is why the total number of subscribers has climbed about 50 percent this year, according to InStat/MDR. However, while the number of subscribers is expected to grow, the rate of growth is expected to drop rapidly --to 38 percent next year, 23 percent in 2004 and into the teens in 2005.
Faster growth overseas
And so, only about one-third of U.S. households are expected to have broadband by the end of2006, with the great majority of those subscribing to the service through cable modems and digital subscriber lines (DSLs).
"It's a little less stunning than what we've seen elsewhere," Schoolar said.
Certainly, the rapid adoption of broadband technologies in other countries had raised expectations for a similar kind of deployment in the United States. In places such as Hong Kong and South Korea, where the dominant local telephone companies have made a priority of rolling out DSL, more than 50 percent of households already have broadband access. Because DSL service requires being within a few miles of the nearest telephone company office, it is best suited to urban areas.
In some countries, too, governments have subsidized broadband Internet service. But because broadband is more subject to the workings of the competitive communications market in the United States, the rollout and adoption has been spottier in this country. And most U.S. households with broadband so far subscribe to cable modem service from their cable TV companies, instead of phone-company DSL.
Out of the estimated 16 million household broadband subscribers in this country, 10.6 million use cable modems and 5.1 million use DSL, according to the Yankee Group research firm. The others use one of various alternatives that include satellite service and so-called fixed- wireless service.
DSL often has proved to be difficult to install, frequently requiring more than one service call --even where the customer is close enough to a local telephone-switching office. And users of cable modems, even
when the modems are successfully installed, often complain of slow access that results when many customers in the same vicinity use the system at the same time.
The issue: price
But many analysts say pricing will continue to be the big issue.
More than 28 percent of households with income above $100,000 have broadband access, compared with only 4 percent of households with incomes below $35,000, according to a study by the Leichtman Research Group. The figures suggest that the price of broadband service must decline before it can become more widely available.
Such statistics speak to the risk of a strategy, such as AOL Time Warner's, that seeks to sell extra services to broadband subscribers for an additional monthly fee.
"AOL's idea of selling multimedia content to the end-user has been the holy grail of the broadband industry since Day I," said Matthew Davis, director of broadband access technologies at the Yankee Group. "Unlike dial-up, unfortunately, it's a business where the margins are a lot thinner."
Maybe it should not be surprising that most of the nation's home Internet users are expected to continue making do with relatively slow dial-up connections, which cost about half of broadband, well into this decade. After all, few new technologies that became widespread in the 1990s obliterated older ones, as Andrew Odlyzko, a professor at the University of Minnesota, points out.
E-mail did not supplant the fax machine, for example, largely because people still found it handy to send along scribbles with documents, and scanning them into a computer can seem bothersome even when a scanner is available.
"There is hardly anything more ludicrous than the fax machine, but it is still around," Odlyzko said.
So too, perhaps, with those old-fashioned dial-up Internet connections. For many households, the Internet still is primarily a way to send and receive e-mail and perform simple Web searches. The slow adoption of broadband indicates that most consumers are not yet ready to double their monthly fees to obtain faster e-mailing and Web searching.