The number of consumers logging onto the Internet through DSL quadrupled in the past year, but that incredible growth came to a screeching halt in the first quarter after some providers went belly-up and others raised their monthly fees.
More than 3.5 million North American customers used digital subscriber line connections in the first quarter, up 297 percent from 882,470 consumers in the same period last year, according to market research company TeleChoice.
But DSL subscriptions in the United States improved only 20 percent from the third quarter, indicating increased competition from other broadband access providers. Publicity surrounding the failures of many DSL providers may have some consumers looking at alternatives such as cable modems, wireless access or satellite services.
"Even though the numbers were disappointing last quarter, they probably weren't as horrible as we might have expected," said Pat Hurley, a DSL analyst at TeleChoice. "But there's no question that demand for cable modems is on the rise. If DSL providers think they can just coast by on the services they're providing and not offer additional applications, they're sadly mistaken."
More than 2.9 million U.S. customers were using a DSL connection in the first quarter. Of that total, 83 percent were getting the service from incumbent local exchange carriers such as SBC Communications, Qwest Communications International, Verizon Communications and BellSouth.
Another 16 percent used a competitive local phone company such as Covad Communications, Rhythms NetConnections or DSL.net, companies that continue to rack up huge losses and find their stocks trading at or below $1 a share.
Major interexchange carriers, or long-distance phone companies, chipped away another 1 percent of DSL connections in the first quarter.
In the fourth quarter, more than 484,000 new DSL connections were made in the United States compared with an increase of 704,000 subscribers in the third quarter.
SBC Communications added 187,000 subscribers in the quarter, down from 251,000 in the fourth quarter. Verizon tacked on 180,000 subscribers compared with 190,000 in the fourth quarter.
Hurley said roughly 100,000 DSL subscribers were cut loose in the first quarter when NorthPoint and other providers shut down operations.
"These customers were forced to either find another DSL provider or look elsewhere for their broadband connection," he said. "It's pretty clear that many of these disgruntled turned to cable companies rather than signing up with an ILEC or another CLEC."
While these DSL providers were shutting their doors, several companies including SBC, Verizon, Earthlink, AT&T, which purchased NorthPoint's assets in a bankruptcy court sale, and Verizon all jacked up their monthly service fees.
"That definitely didn't help," Hurley said, "especially when you factor in the broader issues affecting the economy and the fact that many of these customers were already upset with how things worked out with their previous DSL provider. I'm sure some of these people decided not to go with a DSL connection."
TeleChoice predicts the North American DSL subscriber base will grow to more than 5.6 million consumers by year's end.