SBC to cut high-speed Internet to $14.95/month
Wed Jun 1, 3:14 PM ET
SBC Communications Inc. (NYSE:SBC - news), the second-largest U.S. telecommunications company, plans to slash its price for high-speed Internet service by 25 percent, upping the ante in its rivalry with cable competitors.
SBC said on Wednesday it would offer broadband service for $14.95 per month to new customers who sign up online, $5 less than its previous lowest price. The deal, which requires a one-year contract, makes SBC competitive with many dial-up Internet services and is among the lowest prices for broadband in the United States.
Executives at SBC say they have a two- to three-year window to add as many digital subscriber lines as possible, before cable companies complete their rollout of telephone services and pursue SBC customers with voice, video and data packages.
"It's about market share," said SBC Chairman and Chief Executive Edward Whitacre in an interview last Thursday with Reuters. "The sooner we get there and the bigger piece of market we get, the better off we are. It's essentially us and the cable companies vying for that."
SBC added 504,000 DSL lines in the first quarter of this year, a record increase for the company, but Whitacre had asked executives if it was possible to add 1 million a quarter, a level he says is probably not realistic today.
While its first-quarter growth was a record, SBC's 5.6 million DSL lines are equal to about 11 percent of its total phone lines.
"What we find is if you sell DSL, the customer just doesn't churn," said SBC Chief Operating Officer Randall Stephenson in an interview last week, referring to the rate of customer turnover.
"Once you get them, you've got them," Stephenson added. "It's very important to us to get out ahead of the game and get broadband deployed to every household we can get it deployed in."
Cable companies hold about 59 percent of the U.S. broadband market, due to an earlier start in launching high-speed Internet services to consumers. But telephone companies have been closing the gap over the past year, using lower prices and bundled discounts to add more broadband customers.
Most U.S. cable broadband services cost at least $30 per month, but are usually sold with three- or six-month introductory offers of $20 per month. Those cable lines typically offer higher download rates than competing DSL service.
"While we do not expect this pricing strategy to be implemented across the industry, SBC's move may force the cable (companies) to get more aggressive," UBS analyst John Hodulik said in a research note.
SBC offers DSL service to about 80 percent of the homes in its territory, and Stephenson said the company would try to reach 90 percent within the next 12 to 18 months. SBC executives said the sales push would not necessarily compress margins on DSL service, as handling orders online lowers costs.
Banc of America analyst David Barden said SBC has been the most aggressive of the Baby Bells in pricing, targeting market share gains at the expense of some short-term profits.
"The strategy has led SBC to generate faster (long distance) and DSL sub gains, and faster revenue growth than peers, but at the cost of the lowest margins in the sector," Barden said in a note.
Shares of SBC fell 8 cents to $23.30 in midday trading on the New York Stock Exchange.
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