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
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
, 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
, 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.
The one-year, $26.95-per-month deal, which had been available over the Internet, as part of certain bundles and through retailers including
, will now be offered only as part of a bundle that includes local, long-distance and wireless telephone service, said Coe.
SBC had seen "tremendous success" selling DSL at the $29.95-per-month price before the promotion, said Coe, "and
we fully expect tremendous success selling it at that price point in the future."
Cynthia Brumfield, senior communications analyst at the research firm Pike & Fischer, called the broadband Internet market "pretty volatile ... in terms of promotional pricing."
"No one's promising that some of these very attractive promotional prices will last forever," Brumfield said. That's particularly true for telcos, she said, since their operating margins on high-speed service are half those of cable operators.
SBC's Coe also confirmed that SBC cut the price on its Expert Plus package from nearly $100 per month to $44.99. That service enables downloads at speeds of up to 3 mbps and uploads as fast as 384 kbps, three times faster than the upload speeds for basic service. The offer, he said, is "a trial right now to determine whether or not there is a market for that." But Coe said there's no expiration date on that price drop, which he believes is available throughout SBC's service area other than in Connecticut.
That price cut, wrote Shapiro, is clearly a direct response to cable operators' efforts over the past few months to upgrade their customers to 3 mpbs downloads.
Phone companies are feeling "somewhat vulnerable" regarding the download speed limitations on DSL service, Brumfield said. Downloading speed, she said, "is gaining traction with customers, it seems, almost as much as price cuts are gaining customers."