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Demand grows for high-speed Internet access

November 10, 1998
Web posted at: 1:30 PM EDT

by Eric Brown

(IDG) -- Internet users are increasingly willing to pay for high-speed cable modem and Digital Subscriber Line access, says a report issued on Friday by The Yankee Group, which predicts that 7 million will subscribe to high-speed services by 2002.

According to the survey of 2000 online U.S. households, 41 percent were "very interested" in high-speed access (up from 25 percent the year before), and another 43 percent were "somewhat interested." While it may seem unremarkable that 84 percent of online users want faster access, the study also found that 36 percent of respondents were willing to pay the typical cable modem price of $40 per month, up from 27 percent last year.

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"It's not a cost-related issue," said Bruce Leichtman, director of media and entertainment strategies at the Yankee Group. "You've got a Lexus-type product here that appeals to a niche of a niche."

Possible reasons for the jump in interest include rising awareness of cable modems, greater dependency on the Internet, and the growing congestion of an increasingly media-rich Web. Leichtman also noted that, unlike last year, the latest survey mentioned that the service would be "always on," a feature that has great appeal to Internet users.

A seller's market

Unfortunately for consumers, demand is far outstripping availability.

By year's end, only one in seven households with access to cable television will be able to purchase cable modem service, and that number will grow slowly as financially strapped cable companies struggle to upgrade their networks to two-way hybrid-fiber coaxial cable.

DSL services are available to a much smaller number of users, though the expected ratification of the G.Lite DSL standard in June could cause an explosion in DSL availability in 2000. G.Lite modems are expected to offer roughly the same throughput as typical cable modems: 1.5-Mbps for downloads and between 256- and 384-kbps for sending files.

So far, few cable companies have put much effort into marketing -- only about 300,000 of the 13 million potential customers subscribe to cable modem services.

Cable companies may have their work cut out for them -- those who said they would pay $40 a month for the high-speed access would prefer to buy access from a phone company rather than a cable company by a factor of 4.5 to 1.

Since there's almost no consumer awareness of DSL, said Leichtman, the real issue is that people naturally associate Internet access with phone service. "The same would be true of telephone companies selling cable TV," said Leichtman. "That's the fallacy of the bundle idea, because consumers have a mindset about the provider." In addition, cable companies' spotty record of customer support doesn't help.

Cable's biggest advantage is that it has a substantial head start. But the window of opportunity will be open for only about one more year, said Leichtman. Aside from the advantage of user expectations, the phone companies have greater financial resources, and DSL requires fewer infrastructure improvements.

By 2002, 54 percent of U.S. homes will have access to cable modems versus 50 percent that will be able to purchase DSL. There will be a great deal of overlap, however, as both camps target the same affluent, techno-savvy users in major metropolitan areas. Roughly 40 percent of consumers will have no access to either of these high-speed services in 2002, said Leichtman.

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