Most Won't Pay Premium for Fast Web Access
November 12, 2001 Chicago Tribune - Knight Ridder/Tribune Business News via COMTEX
Those in the computer industry who devise high-tech gadgets for mass markets are confronting what to them is an unthinkable possibility: The average consumer may not want a super-fast connection to the Internet.
After years of extolling the nirvana awaiting us once American households get so-called broadband connectivity to the Web, telecommunications executives have become deeply frustrated that a lot of Internet users are saying no thanks.
In recent weeks such major phone carriers as Sprint Corp., AT&T Corp. and SBC Communications Inc. have pulled back from aggressive broadband rollouts. And two trade associations have warned that waning consumer interest in high-speed networking will scuttle chances that new technology could ignite America's sputtering economy.
While no one is ready to abandon broadband's future yet, the general indifference by consumers has alarmed the industry.
Matthew Flanigan, president of the Telecommunications Industry Association, sent a letter to President Bush appealing for tax credits, rule changes and other actions intended to promote broadband deployment to American homes. Flanigan suggested that if nothing is done, a potential $500 billion stimulus to the economy will be lost.
"If we don't have an overarching position by the government to say we want this, it's never going to happen," Flanigan said in an interview. "At the present rate of deployment, we're talking something that's 20, 30 years away."
Another industry group, the Information Technology Association of America, has also sounded the alarm that broadband deployment is foundering. The ITAA is concerned that most Internet users seem content sticking with dial-up connections because broadband proponents haven't offered compelling content to attract a mass market.
"We've believed that `If you build it, they will come,'" said Harris Miller, ITAA president. "That turns out to be wrong. The industry will have to convince people that this is a nice highway to drive on."
An ITAA report estimates that about 70 percent of American households now have access to cable modem broadband service and 45 percent have access to high-speed connections using DSL technology. But the majority--so far--prefer their dial-up connections.
While some 8 million customers have broadband service, more than 61 million still access the Web using dial-up services, the report found. Contrary to what technophiles believed, most people don't want to pay extra to make their Internet go faster, Miller said.
"Zippier e-mail and faster Web surfing just don't appeal to the mass market," he said.
The ITAA wants the industry to get behind a campaign to promote the value of telecommuting, electronic education, home health care and other applications that broadband can deliver. To date, the industry has spent too much energy focusing on whether DSL is better than cable modems and wrangling over regulatory issues, he said.
"We've turned most of our attention on the supply side of broadband and given almost no attention to the demand side," Miller said. "I know that the supply side issues won't go away, but the industry needs to address the demand side too, so we can grow the pie and everyone will benefit."
The ITAA assessment has much merit, said Joe Laszlo, a senior analyst with Jupiter Media Metrix.
"It really does have to be more than faster e-mail and Web surfing if you're going to pique consumer interest," said Laszlo. "Promotion of broadband does tend to bash cable modems versus DSL to the point where a lot of people think that one technology is going to win out over the other--like VCRs over Betamax. Consumers worry they'll pick the wrong one.
"Really it's more a Pepsi versus Coke thing, where you might like one better than the other but both will still be around."
Another problem facing broadband concerns horror stories from customers who waited for weeks or months to get the service only to find it works only sporadically--or not at all.
Scott Bender, a Chicago-based consultant with Bain & Co., said his firm buys DSL for its employees' homes and has seen the problems first-hand.
"Typically, our folks had to wait three months and it cost a fortune," Bender said. "The service experience is bad and everybody knows it. The further you go into the mass market, the better your value proposition has to be, and there are a lot of gaps right now."
A decade ago, when telephone carriers hoped to extend the ultimate broadband--optical fiber--to customer homes, they searched for a "killer application" that could lure customers to spend more each month so the carriers could finance fiber service.
Interactive television and video-on-demand were offered in test markets and generally failed to excite much consumer enthusiasm.
When the Internet became a popular consumer medium in the late 1990s, the telecom people believed that would be their "killer app." But the latest trends raise questions whether that's the case.
Most fanatic Internet users have already gotten broadband connections to their homes, said Greg Mycio, director of broadband analysis for the Chicago-based New Paradigm Resources Group. Others with an easily recognizable need for broadband, such as those who work at home, also have been among the first to embrace it, he said.
"When you get beyond the first movers, people begin to ask, `What are we getting for our money?' with broadband," said Mycio. "We've been slow to realize that not everybody cares to spend 10 hours a day on a high-speed network connection."
One study cited by the ITAA found that among customers who now have dial-up Internet connections, only 12 percent were willing to pay $40 a month for broadband, which is at the low end of today's prices. Indeed, only about one in three dial-up customers said they would pay $25 a month for broadband, which is just a few dollars more than what dial-up service costs.
If customers won't pay more for broadband, carriers can't afford to provide it. High costs, few customers and some technology glitches were behind decisions by Sprint and AT&T to back away from the fixed wireless broadband services they have launched.
SBC Chairman Edward Whitacre said his company has put the brakes on its DSL expansion because of what it sees as onerous regulations imposed by state and federal authorities. But Mycio said a more important reason may be that SBC has found its return on investment in DSL is too low.
Bain's Bender said that SBC and other incumbent phone companies jumped into DSL a few years ago because the technology had excited public interest and the big companies thought having a DSL strategy would boost their stock prices.
"It's not tremendously surprising now that they're ratcheting back," Bender said.
Even though carriers have tempered their enthusiasm for broadband in recent weeks, experts believe the chances are very good that industry forces will regroup and renew the push to sell broadband to the masses. Efforts such as those advocated by the ITAA or others are quite likely to find a sympathetic audience because so many companies have so much riding on making broadband networking a mass market.
"We've been tracking the slowdown in consumer broadband adoption," said Ford Cavallari, an e-commerce expert with Adventis, a Boston-based consultancy.
A lot of the waning interest is related to legal troubles that have plagued online free music services like Napster, Cavallari said. Some very big firms will be hurt if that trend takes hold, he said.
"If broadband continues to slump, it will prevent many services built into Microsoft's XP operating system from being useful," Cavallari said, because Microsoft programmers assumed a growing adoption of broadband networking when they designed XP.
"They're in for big problems if broadband continues to sputter," he said.
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