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Number Of Online Users In U.S. Reaches 70.7 Million, But Changes Loom
New Pricing, User Demands For High-Speed Access Mean
More Upheaval in Online Industry
(WASHINGTON, D.C., August 8, 2001) The number of U.S. household customers
subscribing to online services rose slightly to 70.7 million subscribers during the second
quarter of 2001, reversing the first-quarter decrease in subscriptions, according to the
findings of TRs Online Census. The survey, compiled by Telecommunications
Reports International (TRI), the leading telecommunications information publisher and a
unit of CCH INCORPORATED (CCH), found a 3-percent increase in subscriptions for the second
Competition, however, is likely to heat up significantly in the dial-up market during
the third quarter in response to America Onlines rate increase announced in May.
"Microsoft Network has already launched an aggressive marketing campaign to try to
win over price-sensitive AOL customers and attract new customers who had been evaluating
AOL," said Amy Fickling, managing editor of TRs Online Census.
"While AOLs clearly the dominant player in this market, the higher rates could
have an impact on future market share, which were likely to start seeing as soon as
Overall, TRs Online Census found that of the six access methods tracked,
five paid dial-up, digital subscriber line (DSL), cable modem, Internet TV and
satellite showed increases in subscribers during the second quarter, with the
greatest reported increase coming in the still-nascent satellite category where
growth increased 52 percent during the quarter and DSL, which reported a
29.7-percent growth rate. Some of the DSL growth is accounted for by companies that did
not report final first-quarter results at the time of the previous Online Census-taking.
Conversely, the sixth category, free dial-up, reported an 11.3-percent decrease in the
number of subscribers.
Online Growth by Category
During 2Q 2001
|Paid Dial-Up ISP
|Free ISPs (active subscribers)
|Digital Subscriber Line
|Satellite (new category)
Source: TRs Online
Telecommunications Reports International
Competition Heats Up in Dial-Up Access Market
Paid dial-up service showed a modest increase of just over 5-percent growth for the
second quarter, but it remains by far the most popular access method with more than 52
One of the biggest potential changes in the industry for next quarter is AOLs
$1.90 rate hike in its basic subscription fee, to $23.90 per month, announced in the
second quarter to take effect at the start of the third quarter. While the impact this
will have on AOLs ability to retain its more than 30 million subscribers or attract
new ones is still not known, the response by its closest competitor has been an all-out
campaign to gain market share.
Microsoft Network, the second-largest dial-up ISP, with 5.5 million subscribers, has
targeted unhappy AOL customers with a promise that its existing $21.95 subscription rate
will stay in effect through 2003, and offered AOL subscribers who switch to Microsoft
Network three months of free service.
"Historically, AOL has attracted about a million new subscribers every two
months," said Fickling. "If this pace starts to decline, it could indicate that
AOL is struggling to replace customers who have abandoned its services due to the higher
Another factor to watch is the growing reliance on foreign subscribership to boost the
customer bases of U.S. online services. AOL now publicly states that 20 percent of its
subscribers are outside the U.S. This has an impact on the results of TRs Online
Census in that the census has historically tracked U.S. household accounts.
Meanwhile, problems continued for free dial-up ISPs, with this market shrinking more
than 11 percent during the second quarter, to just over 9 million users. Perhaps the only
potential good news to come from this segment, according to TRs Online Census,
is the pending merger between Juno Online Services Inc. and Net Zero Inc. The proposed
merger, expected to be completed by the end of the year, would create the nations
second-largest Internet access provider, United Online, with a combined total of more than
7 million active subscribers, including about 1 million paid subscribers, according to the
Until that happens, NetZero and Juno fall below EarthLink in the list of the top five
ISPs, according to TRs Online Census. If the free subscribers are factored
out of the total subscribers for those two companies, then CompuServe and Prodigy Internet
move up to round out the top five.
DSL Remains Market Leader in High-Speed Access
In the high-speed access market, DSL was the clear market leader during the second
quarter, reporting a 30-percent growth rate, while cable modem services stalled at less
than 1-percent growth, according to the survey. However, despite this growth, which may
have been a correction for late reporting of first-quarter results by some companies, DSL
still needs to overcome significant issues that have taken a toll on the industrys
image, including installation problems, shaky corporate financials, lawsuits and the
demise of several companies that had served the sector.
In response to some of these issues, some providers have begun offering home
installation kits to customers, hoping to cut down on the expense and roadblocks to
getting customers up on the service.
Additionally, MSN and AOL have continued forays into this market. Microsoft is now
teaming with Qwest to offer DSL in certain markets. AOL also is seeking a nationwide
provider for its AOL Plus service, which is currently offered through Verizon and SBC
Communications. These three telcos SBC, Verizon and Qwest are the largest
DSL providers, according to the survey.
While DSL showed signs of renewed growth, cable modem did not fare as well during the
second quarter, showing less than a 1-percent growth rate, and reaching fewer than 5
million subscribers. According to TRs Online Census, @home remains the
leader, representing 3.3 million subscribers, while Road Runner has 1.4 million
Internet TV and Satellite Stall
The Internet TV market continued to languish with a growth rate of just 1.6 percent, to
slightly over 1.1 million subscribers as Microsoft and AOL the two dominant
Internet TV providers continue to struggle in re-inventing their services for this
market, according to the survey.
TRs Online Census also found that while satellite access a method
the survey began tracking last quarter showed double-digit growth during the
quarter, theres more behind this as this new industry, too, is facing struggles. For
example, while many major players, including AOL Time Warner, Juno and EarthLink, provide
satellite options, high equipment and installation costs, combined with speed limitations,
tend to keep customers away.
To Obtain TRs Online Census
Annual subscriptions to the quarterly online census are available for $149 by calling
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.