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The Death of Dial-Up

By Elizabeth Millard
Aug 29, 2003 4:00 AM PT

Despite a major push for broadband Internet access by legislators and consumers, the United States is still largely a dial-up country.

The Death of Dial-Up

Even so, it seems inevitable that dial-up will give way to faster DSL and cable technologies as time passes. Implications of this shift are significant for independent ISPs, which built their business around providing dial-up service. Because they do not have the same clout as nationwide ISPs, they are unlikely to be able to forge deals with phone and cable giants to provide broadband access at competitive prices.

Are we witnessing the slow death of dial-up, and if so, what will be the repercussions?

Disappearing Dial-Up?

For customers who yearn for faster connections, the largest obstacle in moving from dial-up to broadband is usually price. At rates of US$34.95 or higher per month, cable and DSL simply cost more than dial-up, for which monthly subscription fees can range from nil to about $25.

The other major barrier to adoption is availability: Many consumers who want broadband cannot obtain it in their geographic area. Still, the cost factor seems to trump the availability factor, according to Gartner analyst Lydia Leong.

"Dial-up use is not so much a regional issue as it is a demographic issue," she told the E-Commerce Times. "Typically, broadband users have higher incomes and can afford the extra cost. This means that even if legislation would bring broadband out to more suburbs and rural areas, it's not guaranteed that it would significantly impact the amount of dial-up customers."

Indeed, Leong added, "Dial-up is just not going to go away."

Nervous ISPs

For smaller ISPs that do not have the resources to offer broadband to their customers, the high percentage of dial-up subscribers likely is reassuring, at least for now.

Sue Ashdown, executive director of the American ISP Association, told the E-Commerce Times that although smaller ISPs are very aware of a decrease in dial-up use in the last six months, anxiety levels remain low.

Still, she said, "they know that they have to be players in the broadband market. They know it's hurting them if they aren't, so that's what they're struggling with right now."

As small ISPs work to find ways to offer broadband in the future, many of them also are focusing on keeping dial-up customers happy enough to stick with their service -- in terms of not only customer support, but also price and speed.

Service Contracts

Indeed, dial-up acceleration is catching on like wildfire. This software-based caching and compression technology allows higher throughput on a dial-up link, resulting in a data transfer rate that is two to five times faster than standard dial-up.

Consumers can either get the technology in stand-alone form from companies like Millenicom or as an added feature from an ISP.

Gartner's Leong noted that this type of software may keep dial-up on life support for quite a while. After all, if consumers can continue to pay only a small fee for Internet access while gaining a speedier experience, it may convince them to linger in dial-up land for years.

"It's been reported that AOL plans to offer the software with AOL 9," she said. "It helps create a slightly better Internet experience, so people have been more focused on using it lately."

Big Guns

Small ISPs are not the only companies trying to keep their dial-up customers content. Larger providers are playing this game, too. Partnerships abound in the sector so that offerings will be considered more robust by consumers who otherwise might hesitate to keep spending money on dial-up access.

For example, Sprint and EarthLink have had a partnership since 1998, when the ISP and the telco realized that linking up would allow them to offer bundled services to customers.

"There's a huge base of customers accessing the Internet via dial-up," said Tom Nelson, who manages Sprint's relationship with EarthLink. "We know that we have to customize what we offer for those customers."

He added that Sprint has noticed that dial-up customers often have different needs and priorities than broadband users -- so, like other ISPs, the company works to tailor its bundles with that in mind.

"What a dial-up customer wants is a fast and reliable connection," he said. "They want things like spam blocking and parental controls. They're not like broadband users, who are more focused on downloading games or music."

Death Delayed

Therefore, it seems that dial-up may remain a viable choice -- at least for some consumers -- indefinitely.

Ashdown noted that in this tough economy, she has even been hearing reports of people returning to dial-up after experimenting with broadband. "They aren't seeing a compelling reason to use it and pay that much extra for it," she said.

Indeed, as long as a significant difference in cost exists between broadband and dial-up, it could be years before dial-up is dead and gone.

"There hasn't been the competition for broadband like there has for dial-up," Ashdown said. "That means the costs stay up. And that means dial-up stays around."


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