Uphill Up-Sell Down-Home

Small businesses, telecommuters, and remote offices have been quick to migrate to broadband services, but residential have not. Will a new crop of marketing campaigns turn things around or is there some vital ingredient providers have missed?

by Patricia Fusco ISP-Planet Managing Editor [September 30, 2002]

A recent study compiled by the U.S. Department of Commerce Office of Technology Policy titled Understanding Broadband Demand, finds that while high-speed Internet access is available to nearly all U.S. families, many see no compelling reason to pay for it. Consequently, only 10 percent of U.S. households that could connect to the Internet using high-speed services have signed up for broadband access to date.

Varying reports indicate that Taiwan, South Korea, Hong Kong, and even Canada have outpaced U.S. consumer adoption of high-speed Internet services on a per-capita basis. The U.K. Office of National Statistics recently reported that broadband is more popular in the U.K. than in the U.S. The agency says that the number of high-speed Internet connections in the U.K rose by 16.5 percent from July 2001 to July 2002. Broadband connections accounted for 6.5 percent of total Internet subscriptions in the U.K. in July 2002, up from 5.9 percent in June.

The U.S. Commerce Department's report, compiled from a number of independent studies, notes that more than 70 percent of American dial-up users list price as the primary reason for not upgrading. The U.K. study credits the rapid increase in the number of broadband subscribers in the region to a fall in the price of broadband technology. But the U.K. price drop just makes the cost of DSL access comparable to the price of similar broadband services in the U.S. Even though Forrester Research finds that 64 percent of U.K. broadband adopters say they switched to free up their telephone lines, compared to 58 percent who switched for a faster connection and 49 percent who wanted an "always on" connection, marketing campaigns promoting these benefits of broadband access seem to have fallen on deaf ears in the U.S.

In-Stat/MDR finds that at the beginning of 2002, there were 7.12 million residential cable modem subscribers and only 4.6 million DSL subscribers in the U.S. Consequently, domestic broadband service providers have shifted their broadband marketing strategies into high gear in order to grow residential adoption rates for broadband services—especially DSL providers that have fallen behind the pace of residential cable modem uptake. Broadband service providers are facing a significant challenge when it comes to domesticating DSL access for U.S. home users.

SBC teamed up with power-portal Yahoo! in order to sell its DSL services. This is an interesting marketing tactic that could bode well for both business entities. The dynamic duo's initial DSL offering covers 14 states, which includes part or all of Arizona, California, Connecticut, Illinois, Indiana, Kansas, Michigan, Missouri, Nevada, Ohio, Oklahoma, Texas, and Wisconsin.

To introduce the service, SBC and Yahoo! are offering new subscribers asymmetrical DSL access—download data speeds range from 256 kbps per second up to 8 Mbps per second—for $29.95 a month for the first six months. The price reverts to $49.95 a month when the introductory pricing expires.

SBC and Yahoo! also bundled their ADSL service with all the bells and whistles a full-service ISP would dream of providing. Features include instant messaging, a customized Web browser, multiple e-mail addresses, parental controls, spam guards, firewall software, e-mail virus protection, and a choice of gaming or bill-pay programs with various terms for data storage.

Essentially, SBC and Yahoo! are trying to eliminate price tag prohibition to residential DSL adoption by pricing their offer only $8 more than the pair's national dial-up services—at least for the first six months of use. Will it work? We'll know for certain in about seven months—one month after the introductory pricing expires.

Meanwhile, America Online has teamed up with Covad Communications to upgrade its DSL offering. AOL has had long-standing deals with incumbent carriers, like SBC, Verizon, and others, but it never mastered cross-service-area selling. So the largest ISP in the U.S. needed to partner with a nationwide DSL provider like Covad.

To pitch its new offer AOL is going back to the basics—the same community-oriented appeal that made it the most popular dial-up ISP in the U.S. AOL is upgrading its chat rooms and file sharing programs for music and photos as part of its campaign to convince members to switch to its high-speed services.

The launch next month of the latest version of AOL's Internet service is expected to be a crucial step in its efforts to regain momentum as it struggles with a slowdown in its core dial-up business and advertising sales. The new AOL version 8.0 is going to be designed to cater more to high-speed users than in the past.

According to AOL executives, it will present members with a full-motion video on the welcome screen greeting users connecting through its broadband services. The glitzy promotion will also have CD-quality sound and programs like "Broadband Rocks," a television-like show with behind-the-scenes concert footage.

It remains to be seen whether AOL version 8.0 and its application-based marketing promotions will be a boom or a bust for broadband adoption.

In the meantime, Covad Communications has decided to focus on price and consumer education rather than user amusement to appeal to the residential market. The company recently launched its national "Popularizing Broadband'' campaign designed to educate consumers about the many benefits of broadband access to the Internet. The promotion runs in tandem with Covad's debut of its tiered pricing program for residential services, which allows residential customers to choose from two different plans that adjust speed in accordance with the price of the service. The residential offerings include:

• TeleSurfer: Features 384 kbps downstream speeds and 128 kbps on the upstream for an introductory price of $21.95 a month for four months, after which services fees climb to $39.95 a month.
• TeleSurfer Plus: Features speeds of 1.5 mbps on the downstream and 128 kbps upstream. The mid-range offer also starts at $21.95 a month for four-months, where upon the price reverts to $49.95 a month.

Covad has also lowered the price on its TeleSurfer self-installation kits from $199 to $99. In some cases the kit may free if consumers are eligible for rebate.

The consumer advertising campaign features television ads dubbed "Power to the People." It uses a lighthearted hero character who entices consumers to "free themselves from the tyranny of slow dial-up connections" and to "Connect Smarter" with affordable high-speed Internet access from Covad.

If dial-up oppression is a substantial factor, Covad may be onto something. But it's been my experience that a tiered pricing program only creates confused consumers—not enlightened DSL users.

Each of these DSL marketing campaigns has their advantages, but they all share the same disadvantage—they are all a temporary fix for an enduring business dilemma. Slashing prices and metering downstream speeds might encourage residential DSL adoption in the near-term, but it will do little to resolve long-term profitability issues for struggling broadband service providers.

If broadband service providers really want to increase their DSL adoption rates, they need to spend less time on quick fixes and cut-rate deals, and more time creating value in high-speed Internet services for residential users.

— End