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Contact Information

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

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 TR’s 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 quarter 2001.

Competition, however, is likely to heat up significantly in the dial-up market during the third quarter in response to America Online’s 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 TR’s Online Census. "While AOL’s clearly the dominant player in this market, the higher rates could have an impact on future market share, which we’re likely to start seeing as soon as this Fall."

Overall, TR’s 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

Service Category

Number of Customers

Growth During 2Q 2001

Paid Dial-Up ISP

52,186,222

5.2%

Free ISPs (active subscribers)

9,100,000

(11.3%)

Cable Modems

4,935,542

.5%

Internet TV

1,223,000

1.6%

Digital Subscriber Line

3,117,000

29.7%

Satellite (new category)

114,000

52%

Total

70,675,764

3.2%

Source: TR’s Online Census,
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 million subscribers.

One of the biggest potential changes in the industry for next quarter is AOL’s $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 AOL’s 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 subscription price."

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 TR’s 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 TR’s 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 nation’s 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 survey’s data.

Until that happens, NetZero and Juno fall below EarthLink in the list of the top five ISPs, according to TR’s 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 industry’s 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 TR’s Online Census, @home remains the leader, representing 3.3 million subscribers, while Road Runner has 1.4 million subscribers.

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.

TR’s Online Census also found that while satellite access – a method the survey began tracking last quarter – showed double-digit growth during the quarter, there’s 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 TR’s Online Census

Annual subscriptions to the quarterly online census are available for $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 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 TR’s Online Census is available by contacting Leslie Bonacum at 847-267-7153.

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