DSL Prime: The Right DSL Price

The Bells are finally gaining DSL customers, but only in areas where they have abandoned their overpriced monopoly advantage pricing plans. The same story is true around the world.

by Dave Burstein DSL Prime [July 14, 2003]

10,000 a day at SBC
$30 proven the right price for volume
They've reached 10,000 subscribers a day recently, which convinced them to extend the $30 price through at least August 31st. The actual count in Q2 isn't known. Partner Yahoo announced 510,000 adds last quarterly, and George Mannes believes most of those were SBC. But Merrill Lynch analyst Adam Quinton said he expects SBC to add 290,000, according to Reuters. (He's probably low—SBC is presumably planning a surprise for the street in their announcement.) My e-mail from consumers and a glance at DSL Reports suggest they are handling the volume well, with dramatically fewer problems than last year.

SBC's best response to cable is to hold on to customers with a great bundled offering, and they've set an internal goal of 500,000 net new subs a quarter, twice what they've been reaching. That seems ambitious, but Yahoo BB did 682,000 a quarter, while France, Italy, and Germany have all done 400,000 a quarter. Fred D'Alessio of Verizon planned 4 million a year for 2003-2004, and I know the Bells still have the resources for massive success.

Verizon also dropped prices, mostly to $35, but didn't get the same boost in the quarter. The company attributes that to dropping an expensive telemarketing campaign that created churn, as well as the small part of the quarter the new prices affected. Presumably, Q3 will have a boost from the pricing and a massive ad campaign. New York is saturated: subways, bus stops, radio ads constantly blaring Verizon DSL. Unfortunately, they are uninspired, without any selling proposition that promotes DSL over cable. Verizon is finally in the game, but still have a way to go. Raising upload to 384 Kbps is a logical first step.

$800 million for Yahoo BB; ?500 million for Hanaro
Lucky holding on at Hanaro, Softbank sells Aozora bank to raise funds
Consumers in Japan and Korea are the beneficiaries of the two "most successful" broadband alternatives in the world, Yahoo BB in Japan and Hanaro in Korea. Both were carefully nurtured by government policies that went far beyond the timid "unbundling" that has been so unsuccessful in the U.S. and most of Europe. The result: Tokyo gets four time the speed of New York, at a lower price, and VOIP is driving down phone rates in Japan astonishingly.

Hanaro is still far from a profit, as KT has fought back strongly, including the first large scale VDSL. The CEO was fired a few months ago, while American International Group was persuaded to invest $450 million to take effective control of the company. LG, holding over 10 percent of the shares, didn't like the deal, and persuaded the board to do an open stock sale for $500 million instead. Lucky promised to buy any shares investors didn't take. Meanwhile, the capital shortage at Hanaro is slowing the Korean momentum towards VDSL. Employees at Hanaro fear the LG control will lead to consolidation with other units and heavy layoffs.

Softbank has investments in hundreds of companies, with interlocking finances very tough to pierce and value. They've already invested over a billion dollars in building the network, and of course with their low prices yield thin margins to recoup the upfront costs. The official line from Softbank is they are now profitable "except for customer acquisition", but "customer acquisition" with the current huge expenses is a very high cost. NTT is fighting back, indirectly raising Yahoo BB costs as well as slowing growth. I put it dramatically last issue, that "perhaps NTT is trying to bankrupt Masa Son and Yahoo BB," but a top Japanese investment banker writes me that their reserves are more than adequate—especially with this $800 million on the way.

Conclusion, yet again: wireline competition is very tough to maintain (Mike Powell failed), but not impossible. The Europeans are trying again, with some success. FT is deploying fast, partly because LDCOM is coming.

Copyright 2003 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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