Broadband Web Surfers Outnumber Dial Up at Home—Report

Home usage increasingly involves broadband, suggesting that consumers with always-on, high-speed Internet connections are more likely to go online, the report said. While Nielsen said the numbers were promising for both ISPs and content providers, others cautioned that broadband usage is likely to plateau, as it has in countries that are ahead of the U.S. in penetration.

“The norm of waiting for a page to load has gone by the wayside through increased broadband access,” said a bullish Marc Ryan, a Nielsen senior dir. The percentage of broadband use was directly correlated with age. The highest level of broadband use, 59%, was among those 18-20 at 59%, followed by those 2-11 at 58%. Those least likely to use broadband were the elderly, with dial-up favored 66-34% among users 65-99. The cross-over occurred around middle age: 51% of surfers age 35-49 used broadband, with 49% of those 50-54 favoring the higher speed access.

While the Nielsen study showed broadband favored at home nationally, some markets already had reached that point. Nielsen competitor comScore Networks said in March that San Diego became the first major U.S. market to surpass 50% broadband usage, at 52%. Boston was right behind with 50%, followed by N.Y. (49%) and Providence, R.I. (47%). The major markets lagging most in broadband were Memphis and St. Louis at only 34%. Russ Fradin, comScore exec. vp, chose to focus on the major markets, calling San Diego’s numbers “another milestone,” coming after broadband penetration had surpassed 1/3 of U.S. homes.

Both DSL and cable-modem penetration has been growing significantly, according to the FCC. A recent study of 2003’s 2nd half found that DSL lines in service increased 24% from the first half, to 7.7 million lines. That made the 2003 increase 47%. Cable modem service increased 20% 2nd half to 16.4 million lines -- for 45% growth in 2003. A report this week by Leichtman Research Group (LRG) (CD Aug 18 p8) found that while DSL and cable modem service subscribership continued to rise in the 2nd quarter of 2004, with 1.7 million subscribers added, the additions were the fewest of any quarter in the past year.

“While the results from this quarter should not necessarily be interpreted as the beginning of a slowdown,” said LRG Pres. Bruce Leichtman, “broadband providers clearly need to focus on retaining the customers they already have in addition to acquiring new ones.” LRG research and other studies suggest that while broadband remains desirable for dial-up customers, a smaller percentage of narrowband customers now say they want to switch.

A Parks Assoc. report on 2nd quarter 2004 broadband penetration suggests broadband is “exhaust[ing] its early- adopter enthusiasts.” A 12-month study cited in “Trends in U.S. Broadband Adoption” found that only 31% of dial-up customers planned to switch, down from 49% in the previous 12-month period. Parks Assoc. Vp-Research Michael Greeson said ISP pricing “will continue to feel pressure from the low end with ‘high-speed’ dial-up services and from the high end as DSL providers look to wage a price war on their cable brethren.”

Reduced desire to switch from dial-up to broadband may reflect the fact that some online users don’t believe they need what broadband has to offer. Andy King, who tracks broadband penetration in his monthly Bandwidth Report, wrote recently that a plateau is coming. Canada tapered off at 67% broadband penetration, he said, while S. Korea hit a plateau of 70%. He said there’s “no way” current broadband growth can be maintained, largely because there’s a significant percentage of people who aren’t willing to pay more for the speed and content broadband provides. He also pointed to Leichtman, who said “even if the price is the same as dial-up there will always be a group of people who are comfortable with what they have and don’t want to change.”

The Bush administration has focused its efforts on broadband availability not uptake. Earlier this year, Bush vowed to have 100% of the U.S. passed by at least one broadband technology by 2007. According to the Administration, about 90% of U.S. zip codes are passed by cable modem service or DSL, up from about 70% in 2000. Satellite and Wi-Max are among technologies cited by administration officials as offering opportunities to increase deployment. At a recent press briefing at the Office of Science & Technology Policy, when asked how adoption could be increased, Dir. John Marburger and other Administration officials focused attention on the private sector. They said further adoption would come through new services enabled by broadband and additional content best viewed through the higher-speed technology.

Nielsen’s Ryan agreed, saying “we're likely to see the richer, more interactive content becoming the standard.” Nielsen on a weekly basis provides reports tracking the online ad industry, which increasingly depends on broadband to provide multimedia ad experiences that equal or surpass what consumers are used to from TV. Unlike King or Leichtman, Ryan didn’t see a plateau approaching. “We expect to see this aggressive growth rate continue through next year, when the majority of Internet users will be accessing the Internet via a broadband connection.”