TELCOS TOUT ADSL PRICE PLUNGE AOL, SBC Deals Signify New High-Speed Data Push

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The battle between cable and telephone companies for thehearts and wallets of Internet surfers is heating up, as two former Baby Bells announcedplans to aggressively roll out ADSL service at much lower prices.

Bell Atlantic Corp., the regional Bell operating companyserving the Northeast and mid-Atlantic states, has formed an agreement withInternet-access giant America Online Inc., making the telco'sasymmetrical-digital-subscriber-line service available to AOL subscribers for an estimated$42 per month.

And SBC Communications Inc., the San Antonio-based BabyBell, said it plans to roll out ADSL in markets in seven states -- including Californiaand Connecticut -- for $49 per month with Internet access.

The two announcements are significant, as they address whatmany have said is one of ADSL's biggest problems -- that it's just too expensive. But withthese offerings, the two telcos are narrowing the gap between ADSL and cable-modem-servicepricing, which is generally between $40 and $45 per month.

ADSL is a dedicated telephone line that allows customers tosimultaneously transmit voice and high-speed data over existing copper wires.

This summer, AOL has plans to offer Bell Atlantic's"Infospeed" ADSL service as a premium upgrade for AOL members in selected areasof Bell Atlantic's service territory. To support the agreement, Bell Atlantic plans tomake ADSL technology available in 7.5 million homes by the end of this year, boosting thatnumber to more than 14 million by the end of 2000.

AOL's offering will only include Bell Atlantic's"Personal Infospeed" DSL service. Originally priced at $59.95 per month,including Web access, Personal Infospeed transmits data at speeds of 640 kilobits persecond downstream and 90 kbps upstream.

After launching Infospeed in October, Bell Atlantic hasrolled out the service in Washington, D.C.; Philadelphia; Pittsburgh; and northern NewJersey. By the time the AOL agreement kicks in, Bell Atlantic expects to have extended theservice to customers in Boston, New York and other cities.

Pricing for the ADSL service has not been finalized, but ina prepared statement, AOL said it expected the upgrade to cost AOL members less than $20per month. AOL customers are currently charged $21.95 for unlimited Internet access.

Observers said the deal gives Bell Atlantic credibility andmarketing muscle and AOL the bandwidth that it craves.

Andy Fuertes, senior analyst with Allied BusinessIntelligence Inc., an Oyster Bay, N.Y.-based research company, said that while bothannouncements are significant, the Bell Atlantic deal may end up having the most impactfor both Internet-service providers and RBOCs.

"When you look for a high-speed Internet option, thefirst place that you're going to look is your ISP," Fuertes said. "This givesADSL better credibility and better awareness."

Fuertes said the agreement takes the marketing onus off thetelco and puts it in the hands of master-marketer AOL, which has 15 million subscribers.

"ADSL has really been losing the publicity battle tocable modems," Fuertes said. "A lot of people believe that the RBOCs can't pullthis off, and that they don't know how to market to consumers."

In fact, Bell Atlantic will have very little to do with themarketing of the service, said Larry Plumb, a spokesman for the RBOC, adding that most ofthose duties will fall to AOL.

Plumb said the decision to ally with AOL was a simple one:Bell Atlantic currently offers ADSL only to its own Bell Atlantic.net ISP customers, whichtotal about 180,000.

"Basically, it's volume," Plumb said. "Thephone network is a volume game."

AOL could offer that volume to other RBOCs and cable-modemcompanies alike. And though the company wouldn't say if any deals were pending, it iskeeping its options open.

"We've always been committed to giving our membersaccess to every technology available in the marketplace," said Wendy Goldberg, aspokeswoman for AOL. "This is an upgrade, and speed is an upgrade market for ourmembers. We are definitely looking to foster competition in the marketplace."

Although Goldberg would not identify any companies that AOLis in discussions with, she added that it is talking to "a number of providers,including cable and DSL providers, about partnerships."

But if any deals with other RBOCs are close, they're nottalking. Spokesmen from both U S West and Ameritech Corp. declined to speculate on any AOLtalks.

There is one downside for Bell Atlantic: It will have toshare the revenue that it receives from ADSL with its new partner.

Fuertes predicted that Bell Atlantic would make up anyrevenue loss in volume.

That loss of revenue won't have as much of an impact onSBC, which has been providing its low-end ADSL service to ISPs in California since thispast summer, at about $60 per month.

The $49-per-month price is only valid for customers whocommit to service for one year, and who use SBC's ISP. For customers who opt for amonth-to-month service or who use an outside ISP, the price climbs to $81.

But despite the fine print, the new pricing strategysignals the evolution of ADSL from mainly a business service -- priced anywhere between$60 and $200 per month -- into one where the main target is the residential user. And thatchange was accelerated by the success of cable modems.

"We think that there is an emerging battle betweencable modems and ADSL for getting high-speed access to the home and business," saidBrian Posnanski, a spokesman for SBC. "We want to deploy [ADSL] as broadly and asquickly as possible."

David Yedwab, senior vice president of Eastern ManagementGroup, a Parsippany, N.J.-based telecommunications-research firm, said the new pricingputs ADSL on a par with cable modems, at least for the moment.

"I think that they have recognized that offeringservice at twice the price that cable is charging is not going to fly," he said.

But ADSL still has a long way to go before it can reach thelevels of cable-modem service. According to DataQuest, a California-based market-researchfirm, there are currently about 50,000 subscribers to ADSL nationwide. In comparison,@Home Network has about 330,000 subscribers and Road Runner some 160,000.

And there is still a chance that SBC could hold back onADSL deployment, depending on whether the telco gets a favorable ruling from the FederalCommunications Commission Jan. 28 regarding access to high-speed networks.

Until then, SBC is planning to spend about $150 million todeploy the entire network, making ADSL service available to 8.2 million residentialcustomers and 1.3 million businesses by the end of the year.

SBC's high-speed offering could start as early as nextmonth in Connecticut, where its Southern New England Telecommunications Corp. subsidiaryplans to test ADSL service in Bristol, New Haven, Waterbury and two other unnamed townsbeginning Thursday (Jan. 21).

And while the new pricing strategy seems like it couldchange the competitive landscape between ADSL and cable modems, not everyone is convincedthat the news is any different from what has been touted in the past.

Matt Wolfrom, a spokesman for @Home, said that while hehopes that ADSL deployment is stepped up, he has heard similar things before.

"We've heard about ADSL deployments for ages, but wehave yet to see a broad deployment," Wolfrom said. "[SBC is] talking aboutyear-end. Those are a lot of promises, and I don't know if they will be able to keepthem."

Wolfrom said broad ADSL deployments would help cable-modemservices by focusing more attention on high-speed Internet access.

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