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Free ISPs Fade From The Scene As High-speed DSL Installations Finally Draw Promised Subscribership
68.7 Million Consumers Now Online, 52 Percent More Than Year-End 1999
(WASHINGTON, D.C., January 30, 2001) The tide turned in the online access market
in 2000, according to Telecommunications Reports International (TRI), the leading
telecommunications information publisher and a unit of CCH INCORPORATED (CCH). While
digital subscriber line (DSL) access was slow to take off, it ended the year with
tremendous strength, according to fourth quarter 2000 results from TRs Online
Census. On the other hand, free Internet service providers (ISPs) started the year on
a high and now seem to be bottoming out.
In 2000, the overall online market showed a healthy 52-percent growth with 68.7 million
consumers now subscribing to one of the major ISPs via paid or free dial-up access,
Internet television, digital subscriber line (DSL) or cable modem services. That compares
to 45.2 million online customers a year ago. While growth during 2000 was strong overall,
less than 9 percent of the new subscribership came online during the last three months of
the year, according the TRs Online Census.
The main area of growth in the fourth quarter comes in DSL access, with more than 2.3
million consumers now subscribing to DSL, nearly twice as many as at the end of the third
quarter. Consumers using cable-modem access also increased during the last quarter,
bringing the total number of subscribers now connecting via high-speed access (cable-modem
or DSL) to nearly 10 percent of the overall online market, according to the study. TRs
Online Census, conducted quarterly since 1980, is the definitive survey of online
access methods and trends.
On the flip side, just as fast as the free, ad-supported Internet service providers
(ISPs) captured the attention of consumers earlier in the year, by the end of 2000
consumers seemed to have lost interest, with many looking at the high-speed alternatives.
"The online industry is still relatively young and the technology continues to
evolve," said Amy Fickling, managing editor of TRs Online Census.
"As a result, we can expect it will be a continuous challenge for ISPs to figure out
what features and access methods attract customers and at what price points."
Online Growth by Category
During 4Q 2000
|Paid Dial-Up ISP
|Free ISPs (active subscribers)
|Digital Subscriber Line
Source: TRs Online
Telecommunications Reports International
Free ISPs enjoyed strong growth in the number of subscribers signing on during the
first half of the year. However, a market shakeout late in the year has left all but a few
viable free ISPs remaining.
In the fourth quarter, free ISPs did see a very slight gain of 1 percent in the number
of active subscribers, according to TRs Online Census. However, late in the
quarter, the market took a turn, with major free ISPs like Alta Vista and 1stUp.com
announcing they would shut down their free ISP operations by the end of the year. Others,
like NetZero and BlueLight.com (which acquired Spinway), are revamping their services and
will be charging subscribers that exceed a monthly usage limit.
"Most of the free ISPs have acknowledged that only about 40 to 50 percent of their
registered subscribers are active users, making it apparent that while there were no
barriers to sign up for free access, there were also no real incentives to use the service
regularly," said Fickling. "As these services were ad-supported, its
certainly a problem for advertisers if the consumers arent online viewing their
Paid Dial-Up ISPs Hold Their Own, But Price War May Be Imminent
While paid dial-up ISP remains the most popular access method, the category only
reported modest growth of about 9 percent during the fourth quarter, reaching more than 46
Leading the paid dial-up ISP pack is America Online (AOL), with 26.5 million customers
registered by the end of the year making it the dominant ISP with a 39-percent share of
the overall consumer base. EarthLink, MSN Internet Access, CompuServe and Prodigy round
out the top five paid dial-up ISPs.
How consumers and competitors will react to AOLs anticipated 8-percent price
increase will be closely watched this year. It may be that not only is free ISP service
going away, but that paid dial-up service will get more expensive, as it is likely that
AOL competitors would follow its lead, according to the study.
High-Speed Access Outpaces the Rest
Those consumers who arent price conscious seem to be heading for high-speed
alternatives. TRs Online Census finds this growth comes despite cutbacks and
financial failings among some of the major DSL providers.
During the fourth quarter, the DSL market, again, captured the greatest growth among
all categories, with an 86-percent increase in new customers. SBC, realizing a 95-percent
growth rate in the fourth quarter, further strengthened its position as the dominant DSL
provider with 800,000 subscribers. Verizon, Qwest, Covad and EarthLink round out the
top-five providers, according to TRs Online Census.
While paling in comparison to the DSL growth rate, cable-modem still reported a
19-percent growth rate for the fourth quarter. Cable-modem also remains the most popular
high-speed access method, with nearly 4.2 million customers, compared to DSL, with fewer
than 2.4 million customers.
According to the survey, @home, carried by TCI, Comcast and Cox, and Road Runner,
carried by Time Warner/AT&T, have a virtual duopoly with nearly 97 percent of the
cable-modem customer base.
However, among the stipulations of the AOL-Time Warner (TW) merger were that Time
Warner Cable systems be open to alternative ISPs, in addition to Road Runner, which AOL-TW
owns in part. As a result, Time Warner Cable customers using high-speed cable access will
have a choice of either AOL or EarthLink as their ISP by the second half of this year.
Also, Time Warner is required to restructure its exclusive agreement with Road Runner and
has announced that Road Runner will be offered on AT&T Broadbands cable lines
starting in April 2001, according to TRs Online Census.
Internet TV Still Around
For Those Who Are Interested
While the move to high-speed access is more like running, the move to Internet TV
remains a leisurely walk. The first half of 2000 was marked by no measurable change in the
number of subscribers.
During the third quarter, Internet TV reported a 2.5-percent increase in subscribers,
and for the fourth quarter a 5-percent increase. However, with only 1.2 million
subscribers, Internet TV remains the least common access method, according to TRs
Online Census. The Internet TV space remains dominated by Microsofts WebTV,
which commands nearly the entire market.
To Obtain TRs 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 TRIs 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 North America. 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 TRs Online
Census is available by contacting Leslie Bonacum at 847-267-7153.