High-speed “Lite” used as retention tool, affordable upgrade for dial-up customers

An increasing number of cable operators are offering high-speed "lite" Internet access services in an effort to retain existing customers or snag new customers from dial-up providers. Cogeco Cable Inc., which operates in various communities in Ontario and Quebec, became the latest cableco to enter the fray when it quietly launched a lite product in Ontario in September. The launch occurred only two months after Cogeco’s president/CEO Louis Audet told financial analysts that the company didn’t have much of an appetite to offer a lite product. "We have no interest in offering a product that doesn’t have margin. We view it as a waste of energy," he said, adding that Cogeco might have no choice but to introduce a lite product in the future as a competitive response to the DSL lite service offered by its main competitor, Bell Canada. Canada’s fourth-largest cableco says the service is meant as a customer retention tool, which is the strategy of most other lite-speed providers. The company also launched a premium high-speed service called Cogeco High Speed Pro in early October, which offers 640 kbps upload speeds and 4 Mbps download speeds for $69.95/month. In discussing its 2002 fourth quarter financial results last month, Cogeco executives told financial analysts that after six weeks of offering the lite service, 10 per cent of the 10,000 net high-speed customers acquired by the cableco in that period took the lite product. Rogers Cable Inc. said last month that 20 per cent of the 53,300 net high-speed Internet customer additions in the cableco’s third quarter ended September 30 were lite customers. Overall, eight per cent of Rogers’ 594,200 high-speed subscribers at the end of September were lite customers. The cableco charges $29.95/month for its lite service or $24.95/month for its cable customers, compared with $44.95/month for its regular high-speed service. Shaw Cablesystems has declined to provide a breakout of high-speed lite subscribers in its quarterly reports or in response to queries from financial analysts, citing competitive reasons. It charges $29.95/month for its lite service, although like Rogers it knocks $5 off the price if customers also subscribe to the cable service. Vidéotron ltée does not offer a lite product, but unlike the other three big cablecos, it offers dial-up access. On the telco side, nearly half (45,000) of the 93,000 net DSL subscribers that Bell Canada added in its third quarter ended September 30 were to its Sympatico DSL Basic service, the 128 kbps lite service launched in June (NL, Feb. 11/02). Bell noted that 50 per cent of the DSL lite additions in the quarter were migrations from the Sympatico dial-up service, thereby reducing dial-up customer losses to competitor offerings. Bell’s DSL lite service is regularly $24.95/month, but the telco is currently offering a promotion whereby the service is available for $21.95/month for the first three months. Even smaller cablecos, such as Hamilton ON-based Mountain Cablevision Ltd., now offer a high-speed lite service. A survey from Industry Canada says that while more than 60 cable companies provide cable Internet, the big four control 93 per cent of the market. "In 1999, 29 per cent of households (3.3 million connected households) had either dial-up or high-speed Internet access at home," Telecommunications Service in Canada: An Industry Overview reports. "As of December 2001, there were approximately 11.7 million business and residential Internet customers in Canada, including 6.6 million households, of which more than 40 per cent subscribe to some form of high-speed access." Cable is the dominant carrier for high-speed, but telcos, with their DSL, are gaining ground. By the end of last year, there were an estimated 1.7 million cable Internet subscribers versus one million DSL customers. But DSL has leapt from 13 per cent of the market in 1999 to 41 per cent now. The entire Internet market – be it dial-up, high-speed cable, lite or DSL – is approximately seven million subscribers. Cablecos represent 22.5 per cent of that market, with Bell close behind at 22 per cent. Telus Corp. holds 9.6 per cent, Aliant is at 3.8 per cent, other ILECs are at three per cent and Call-Net Enterprises Inc. has a 2.1 per cent market share. Other ISPs, including AT&T Canada, PSINet and independent companies, have 37 per cent of the market. The growth in DSL penetration is a global phenomenon. A recent study by the DSL Forum found that in the first six months of this year, DSL grew by 36 per cent internationally. Latin America, the Mideast, Africa and Southeast Asia all experienced triple-digit growth. Even Western Europe saw its growth rates increase by more than half. Globally, the North American market accounts for one-quarter of the share. DSL is most popular in the Asia Pacific region (see chart). In Asia, North America and Western Europe, the vast majority of DSL subscribers are residential customers. The highest percentage of business DSL use is on this continent, where a mere 22.6 per cent of DSL lines are from companies. Still, DSL Forum says much of the DSL growth in North America appears to be deriving from business subscribers. All of this growth in cable and DSL is at the expense of the slower dial-up service. The Industry Canada report states that in 1999, dial-up customers represented 99 per cent of telcos’ Internet clientele. By 2001, that share had fallen to 59 per cent. While the ILECs have registered high-speed growth of 240 per cent over the last three years, the increase in dial-up subscribers is only 30 per cent. This is again in keeping with international trends. A survey by IDC finds that the dial-up market in Western Europe, currently estimated at 46.2 million, will peak next year and decline to 39.9 million by the end of 2006. As users become more sophisticated and start demanding more bandwidth, they will shift to broadband. IDC predicts that user spending on broadband will jump 13 fold between 2001 and 2006. American telco SBC Communications Inc. recently reported that it added 226,000 DSL customers in its third quarter, which ended September 30. That brought its total up to 1.95 per cent, a jump of 65 per cent from the previous year. The company claims its DSL subscriber base has since crossed the two million threshold. Also looming on the horizon is the increase in fibre to the home (FTTH). Research conducted by Render, Vanderslice and Associates of Tulsa OK released at a conference in New Orleans states that the number of American homes with direct fibre links will grow to more than one million by 2004, a 330 per cent jump from the estimate for 2003.

High-speed “Lite” used as retention tool, affordable upgrade for dial-up customers

News | November 4, 2002

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