Study: Modem Users Favor Telcos Over Cable

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When it comes to rolling out high-speed-data services,
telephone companies may have an edge over cable operators, according to a survey of
"technologically advanced families" released last week by The Yankee Group.

Of those considered most likely to subscribe to a
high-speed-data service, 11 percent of those surveyed said they would prefer to buy that
service from a cable operator, while 41 percent said they would choose a telephone
company.

"The consumer is still more comfortable with their
phone company than with the cable companies" when buying data services, Yankee Group
analyst Bruce Leicthman said, during a telephone media conference last Tuesday.

Leichtman estimated that about 280,000 U.S. households
currently subscribe to a high-speed cable-modem service, such as @Home Network or Road
Runner. Because telephone companies have only recently begun to roll out high-speed DSL
(digital-subscriber-line) services, penetration for those services is still quite low.

"Cable operators need to understand that even though
they were the first to roll out the services, they're not necessarily the first in
consumers' minds," Leichtman cautioned.

In addition, Leichtman said, telcos may eventually gain
another marketing advantage because they have the ability to be ubiquitous within a given
market, whereas in some markets, multiple cable operators may each offer their own
different high-speed products and prices.

Leichtman advised operators to consider getting together to
jointly promote their high-speed Internet services within a given market once the
competition from telephone companies becomes more heated.

As worded, the Yankee Group questionnaire assumes the
monthly subscription for both cable-modem and DSL service to be $40.

While that's not out of line for a typical high-speed
cable-modem service today, Leichtman acknowledged that DSL pricing is not there yet, as it
is still priced at $60 or more per month. "At $60, that's not consumer pricing, in my
mind," he added.

But The Yankee Group also doesn't expect to see much
downward movement in the pricing of high-speed cable-modem services.

"We're talking about a high-end product," he
said, "a Lexus, rather than a Chevy."

The survey projected that more than 10 percent of U.S.
households would express some willingness to pay the $40-per-month fee for a
high-speed-data service. Of those surveyed, more than 34 percent of current online
households expressed some willingness to pay extra for higher speeds, and 26 percent of
personal computer users were very likely or somewhat likely to pay for the high-speed
services.

Leichtman said that while high-speed data is a great
product, the biggest danger in making industry projections today is overcoming
overexpectations. He predicted that the services might not see high penetrations until
2005 or 2006.

By the end of 2002, 54 percent of U.S. households will have
access to high-speed cable-modem service, the survey projected. Ultimately, market
penetration won't be a function only of demand, but also of supply.

"We foresee a nation of haves and have-nots,"
Leichtman said, adding that while a majority of consumers may someday have a choice
between high-speed cable-modem and DSL services, 40 percent or more may not have access to
either well into the next decade.

The Yankee Group has studied the so-called technologically
advanced families, or TAFs, as a special population segment because it believes that early
adopters of technology can help to foreshadow how quickly the later adopters will move to
new products and services.

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