Bells Offer Free Wi-Fi Equipment
To Defend Internet Turf
By JESSE DRUCKER
Staff Reporter of THE WALL STREET JOURNAL
July 6, 2004; Page A15
There's a new weapon in the war between cable operators and telephone companies to capture high-speed Internet customers: free or discounted Wi-Fi equipment.
Wi-Fi, which allows consumers to cut the cord by using wireless signals for high-speed Internet access, file sharing and printing, has soared in popularity over the past three years. Millions of people have set up systems in their homes and offices.
Now, local phone companies that are trying to steal market share for their Digital Subscriber Line services from cable rivals are using Wi-Fi to lure new customers. Verizon Communications Inc. and BellSouthCorp. now give away free Wi-Fi routers to new DSL customers after a rebate. Qwest Communications International Inc. includes Wi-Fi capabilities in every DSL modem it sends to customers. SBC Communications Inc. has sold the equipment to more than 700,000 DSL customers.
It's the latest salvo by the big Bell telephone companies to keep cable modems out of people's homes and businesses -- and, the Bell companies hope, stalling cable's entry into the telephone business. For years, the nation's big local phone companies were slow to offer high speed Internet access via DSL, focusing instead on renting second phone lines for Internet access. Cable companies, worried about competition from satellite television providers, got a head start as they aggressively rolled out cable modems to gain a competitive advantage.
But last year, telephone companies started slashing prices on DSL subscriptions in an effort to take market share. It appears to be paying off: during the first three months of this year, the numbers of new DSL customers actually surpassed new cable modem customers. Telephone companies added 1.168 million new DSL customers in the first three months in 2004, nearly doubling the growth from a year earlier, according to Lehman Brothers. Cable companies, on the other hand, added 1.14 million new cable modem subscribers, down 16% from a year ago, though cable retains a big lead.
Analysts say the entry of Wi-Fi into the contest to win the nation's broadband customers is a logical next step. "It's yet another example where the technology was going to take customers there anyway, so either try to get paid for it, or use it for competitive advantage," says Blake Bath, a telecom analyst for Lehman Brothers.
These days, broadband providers say home wireless networks will make customers less likely to switch, since setting up a Wi-Fi connection can be complicated. Cable company Cox Communications says subscribers who purchase its wireless networking equipment have half of the 36% annual defection rate of its overall cable modem customer base.
The Bells have an even more important goal than gaining market share in the Internet access business: keeping cable modems out of people's homes will make it harder for cable companies to sign up customers for so-called voice-over Internet protocol calling, or VOIP.
In a huge threat to the U.S. telecom industry, cable companies and some phone carriers are increasingly offering telephone service using Internet technology. Such Internet calling services require high-speed connections like those offered through cable modems or DSL lines. That means the battle for market share between DSL and cable modem services is no longer merely about Internet access -- it puts telephone companies' core voice service at stake as well.
Telephone companies acknowledge that their main business is moving away from voice calls over their traditional copper networks. "We think that the future core product for Verizon is broadband," says Eric Rabe, a Verizon spokesman. "You want now to capture that market and want to do that as aggressively as you can, and you certainly don't want to cede it to the cable guys." He says the company actually turned a small profit on the routers it sold before starting the full rebates. (Verizon pays for the router rebates which it says will end later this month.)
After initial problems installing DSL lines, the Bells seem to have largely overcome the glitches. Mr. Rabe says the company's DSL business is not profitable, but is expected to break even soon.
Cable companies are jumping into the phone business. Comcast Corp., the country's largest cable operator, recently announced plans to make its telephone service available to 40 million households. Cox offers telephone service in 12 cities. Time Warner Cable, a division of Time Warner Inc., says it will offer telephone service in all 31 of its markets by the end of the year. And Cablevision Systems Corp. announced last week that it would offer a package digital cable television, high-speed Internet access and effectively free telephone calling.
Cable companies are also getting into Wi-Fi, though not as aggressively. Comcast started leasing Wi-Fi equipment to customers last year and plans to offer it in all its markets by the end of the year, charging for installation -- including the complicated process of setting up password security systems for up to five computers. The company also charges $10 a month for customer support and higher speed service.
Cox, meanwhile, offers equipment -- including routers and PC cards -- and installation for an average of $249, with no required monthly service charges. But the cable company says that it is looking at aggressive promotions in the fall.
"The bottom line is for us to position the company as the go-to expert for all communications for your house," says Cox spokesman Bobby Amirshahi. "It gives us a springboard for offering other products down the road." Wireless devices, for example, could allow consumers to download music files and send them wirelessly to their stereo systems.
Time Warner Cable offers Wi-Fi equipment, including the laptop antenna cards. The equipment is either free or with a charge, depending on the location. Installation, too, ranges from free to $35, with a monthly service charge usually around $6, but up to $14.95 in one market.
Time Warner supports the spread of Wi-Fi -- to a point. Two years ago, the company sent letters to cable modem customers in New York, forbidding them from using their Wi-Fi signals to share Internet access with neighbors. Time Warner says that consumers who do so are violating their subscriber agreement, although sharing it with household members isn't a problem. "It's akin to running a line from back of cable box to a neighbor," says spokesman Keith Cocozza. He also says that Time Warner was warning customers that their unprotected Wi-Fi signals could be vulnerable to poaching by others.
BellSouth also requires payment for the service: after a $149 rebate on the equipment, making it free to consumers, the carrier charges between $5 and $10 a month for customer support, depending on the speed of the DSL connection. |
