Cable Fans Cheer SBC Broadband Shift

SBC Communications SBC ended a low-price promotion for its DSL service this weekend, prompting a suggestion that pricing for high-speed Internet service has bottomed out.

Closing out a promotion that began last October, SBC raised the lowest monthly price that most customers can pay for digital subscriber line service to $29.95 from $26.95. The move restores the feature's prepromotion price.

That $3 increase "suggests that broadband pricing may have bottomed," wrote Banc of America analyst Douglas Shapiro Monday in a note that reported the price rise, along with a $55 price cut in one of SBC's more expensive Internet offerings.

The low-end price rise is good news for cable stocks, writes Shapiro, who says the biggest weight on the sector has been investors' fear that telcos and cable operators "will eventually kill each other."

The pricing issue on broadband Internet service has been hanging over cable stocks since Verizon VZ announced price cuts last spring, says Shapiro.

And SBC's role in this game is key. The company, which offers broadband service in conjunction with Internet bellwether Yahoo! YHOO, had 3.5 million DSL subscribers as of Dec. 31, giving it the largest broadband presence among regional Bells, and giving it roughly 15% of the high-speed Internet market in the U.S.

"Duopoly economics suggests there is a strong likelihood that prices will not only ultimately stabilize as the market matures but eventually even move higher," writes Shapiro. "We believe SBC's price increase may be the first sign of some stabilization."

SBC's shares rose $1.11, or more than 4%, to $26.61 Monday. Most cable operators' shares were up to a lesser extent, with the stock of Comcast CMCSA, the nation's largest operator of cable systems, up 12 cents to $34.22.

SBC spokesman Michael Coe confirmed that on Jan. 31, SBC ended the promotions for its Basic and Standard Plus packages, which employed download speeds of up to 384 kilobits per second and 1.5 megabits per second, respectively.