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Leslie Bonacum
847-267-7153
mediahelp@cch.com
Neil Allen
847-267-2179
neil.allen@wolterskluwer.com

Number Of Consumers Online Increases 24 Percent In Second Quarter

Price Wars May Be Near for Fee-Based ISPs as Free, Plugged in and Premium
High-Speed Access Providers Are Signing Up Record Numbers of Subscribers

(WASHINGTON, D.C., August 9, 2000) – More than 11 million consumers joined the online ranks during the second quarter of 2000, an increase of nearly 24 percent since the end of last quarter, according to TR’s Online Census. However, rather than pay a basic monthly service charge to a fee-based, dial-up Internet service provider, more consumers are flocking to free, ad-supported services, or showing a willingness to pay a premium for high-speed cable modem or digital subscriber line (DSL) services. TR’s Online Census is compiled by Telecommunications Reports International (TRI), the leading telecommunications publisher and a unit of CCH INCORPORATED (CCH).

According to the quarterly survey of online subscribership, the nation’s largest Internet service providers (ISPs) now reach 62.3 million customers, including those who access via traditional dial-up, Internet television, digital subscriber line (DSL) and cable modem services.

TR’s Online Census, conducted quarterly since 1980, is the definitive survey on online access methods and trends.

"Free ISPs fueled the tremendous growth in Internet access accounts this quarter and have reshuffled the lineup of the nation’s largest consumer-oriented online service providers," said Amy Fickling, managing editor for TR’s Online Census. "Meanwhile, high-speed providers, particularly DSL providers, continue to show significant growth rates, while most of the leading fee-based dial-up ISPs showed only single-digit percentages in their growth rates, if that."

Online Growth by Category

The most popular access method remains dial-up ISP, which now accounts for more than 58.1 million customers. However, the 24-percent growth rate in this segment during the second quarter is due in large part to the success of free ISP services. Many of these free services show significant growth, while fee-based ISP growth hovered at around 5 percent on average.

With a growth rate of 51 percent, the category for DSL shows the most significant increase for the quarter. With just 286,300 subscribers, DSL is the newest entrant in the market. Also showing a healthy gain is cable modem access, with a 21-percent growth rate during the quarter to nearly 2.8 million customers. Internet TV, on the other hand, remains stagnant at 1.1 million users, according to TR’s Online Census.

Online Growth by Category

Service Category

Number of Customers

Growth During 2Q 2000

Dial-Up ISP

58,149,000

24.5%

Cable Modems

2,766,550

21.4%

Internet TV

1,115,300

No change

Digital Subscriber Line

(excluding telco dial-up ISP users)

286,300

51%

Total

62,317,150

23.7%

Source: TR’s Online Census,
Telecommunications Reports International

Free ISPs Leave Their Mark

One-half of the top 10 ISPs listed in TR’s Online Census are now ad-supported providers. Collectively, the free ISPs account for 27 percent of the customer base served by the nation’s largest ISPs. As America Online, with more than 23 million customers, accounts for another 37 percent of the ISP market, that means that only 36 percent of the market remains for the dozens of other participants to compete for.

According to the study’s findings, the top 10 ISPs now account for 88 percent of the total online audience. These providers for the second quarter are America Online, 1stUp.net (free), NetZero (free), EarthLink, Spinway (free), Juno Web (free), CompuServe, MSN Internet Access, Prodigy and Freeinternet (free).

Among the free ISPs leaping into the forefront during the second quarter was 1stUp.net Corp., with 4.2 million customers, mostly gained through its private-labeled services for Alta Vista Co. and Excite@Home’s FreeLane. Another new top-tier entrant is Spinway Corp., with 3.6 million users, most of whom have signed up for Kmart’s BlueLight.com access service powered by Spinway. Juno Online Services Co. also migrated 3 million of the customers who used its free e-mail service over to the free Juno Web ISP service.

While TR’s Online Census finds that many of the customers who are signing up for the free services are existing online users who want an additional account for personal use, the increased popularity of free ISP service is taking a toll on traditional fee-based providers.

One victim of the free ISPs’ success is AT&T WorldNet, which showed nearly a one-third loss of customers during the second quarter, knocking it out of the top tier of access providers. In response, WorldNet introduced "i495", a low-priced ($4.95 per month) service, in July. AT&T expects that about one-half of its remaining 1.5 million WorldNet users will abandon its $21.95 per month full-fee service for the lower-priced service.

"It’s likely that this move by AT&T will set off the next round of price wars in the ISP business, as the providers try to capture greater market share among consumers who are clearly showing a preference for low- or no-cost service when it comes to dial-up access," said Fickling.

Growth in High Speed Access Continues to Accelerate

While the free versus fee-based dial-up ISPs fight for market share, many consumers are showing that they’re willing to pay a premium price for high-speed access.

The DSL market saw the greatest growth among all categories this quarter, with a 51-percent increase in its customer base to 286,300. Among those showing the greatest growth during the quarter were SBC and Covad Communications Group Inc., recording increases of 136 percent and 75 percent, respectively, in the number of DSL subscribers. SBC, US West and GTE, in order, are the leading DSL providers, according to TR’s Online Census figures.

Cable modem providers also recorded continued growth, with 24.5 percent more subscribers signing on during the quarter. This brings the number of consumers accessing the Internet via cable modem to nearly 2.8 million. The two undisputed leaders in the cable modem market are AtHome followed by Road Runner. Together, they account for 98 percent of the overall cable modem market.

Internet TV On Hold

For the second consecutive quarter, Internet TV seems to be stuck in neutral with no significant changes in the number of subscribers. Microsoft’s WebTV, with nearly 99 percent of the subscribers, remains the giant in this market.

To Obtain TR’s Online Census

Annual subscriptions to the quarterly online census are available for an introductory price of $149 by calling 1-800-822-6338.

About TRI and CCH INCORPORATED

Telecommunications Reports International, based in Washington, D.C., is the most respected provider of telecommunications industry news and analysis. Since 1934, executives and policy-makers have relied on TRI’s comprehensive coverage and analysis of major industry issues and events. TRI is part of the Business and Finance Group at CCH INCORPORATED, a leading provider of tax and business law information and software. The TRI web site can be accessed at www.tr.com.

CCH has served more than four generations of business professionals and their clients, covering a wide range of legal and compliance topics including securities, insurance, banking, telecommunications, trade regulations and government contracting. CCH is a wholly owned subsidiary of Wolters Kluwer. The CCH web site can be accessed at www.cch.com. The CCH Business and Finance Group web site can be accessed at http://business.cch.com.

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EDITORS NOTE: For members of the press, a complimentary copy of TR’s Online Census is available by contacting Mary Dale Walters at 847-267-2038.

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