ADSL prices stop falling

2003 was a good year for cheaper broadband, but telcos are now positioning themselves to improve the bottom line, according to new figures

The days of generous broadband price cuts are over, for the moment at least, according to an analysis published this week.

2003 was a year of slashed entry-level prices for ADSL (asymmetric digital subscriber line) broadband service providers around the world, as competition mounted from cable-broadband ISPs and rival telcos, according figures released on Wednesday by broadband analyst Point Topic. But now that new competition has died down, prices have levelled off and are unlikely to drop again in the near future, the firm said.

"There is every reason for suppliers of broadband to hold their prices," said Point Topic principal analyst Tim Johnson. "None of them are exactly making money. There is not much new competition in sight -- competitors have established themselves and settled down."

The study analysed monthly rentals for entry-level ADSL services from 18 operators in Europe, the US and Asia for the fourth quarter of 2003. Only six -- Bell Canada, SBC, NTT, Yahoo Japan, France Telecom and BT -- reduced their charges in Q4; others maintained their prices.

The picture was different earlier in the year. Using the prices of Q1 of 2001 as a baseline, Point Topic found that on average prices went up slightly in 2001 and then levelled off before falling sharply in mid-2003.

"There was a general feeling that they needed to open up the market more. They cut their prices and went for volume," Johnson said. The pressure to cut prices came partly from increasing competition in early 2003, from cable operators and, in some countries, vigorous unbundling activity. "A year or so ago, the market was in a phase where competition was still increasing," Johnson said.

In Japan, the government pushed through an effective unbundling system -- whereby competing telcos get low-cost access to the network of the dominant operator, allowing them to offer competing ADSL services. As a result, NTT lost significant market share and prices were slashed, Johnson said. In the UK, most ADSL providers resell BT's wholesale ADSL service.

Prices are unlikely to go up again for the time being, but they will probably not go down either, Johnson predicted. Instead, operators will focus on building up ARPU (average revenue per user) through premium services.

He suggested the ADSL situation could go in the direction of the PC industry, attracting buyers through low headline prices but making money with "add-ons" that are actually necessary parts of the system. "The headline price for a PC might be £800, but by the time you've bought everything you need it's double that," he said.