Home Front: No Dash to High-Speed Net Access After Sept. 11

The economy is still the overriding factor when it comes to spending on broadband services.
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Editor's note: This is the fifth installment in TheStreet.com's Home Front series, a collection of twice-weekly features examining how American business, society and investing have changed in the post-Sept. 11 landscape.

As a result of Sept. 11, Americans may like commuting less. But they may not like telecommuting more.

At least not enough to turn around the fortunes of companies like Excite@Home (ATHMQ) and Qwest Communications (Q) .

Anecdotes and speculation might lead one to believe that an increased desire for telecommuting -- working from home to avoid making a trip to the office -- might accelerate growth of high-speed Internet connections like cable modem subscriptions and telephone-based digital subscriber line (DSL) service.

Such demand, strangely enough, would come as certain broadband Internet suppliers, such as Qwest and SBC Communications (SBC) , appear to be losing enthusiasm for the high-speed connection business especially suitable for the small-office/home-office market.

But people familiar with the broadband Internet market say that while post-terrorist-attack anxiety may have some effect on demand for high-speed Internet connections, more powerful factors such as pricing and economic conditions overshadow the home office cocooning as a factor in increasing or decreasing broadband's growth.

Quantifying the effect of a traumatic day on information-technology spending is obviously a difficult task. But market research firm Gartner Dataquest has tried. Out of 164 companies polled by Dataquest at the end of September, about 25% said they would significantly expand or encourage telecommuting.

That response might not be as large as it seems. When asked about telecommuting in normal times, companies generally say they'll keep it at the same level or increase it, says Margaret Schoener, senior analyst at Dataquest. "Quite frankly, I thought this would be a larger 'yes' than we got," she says.

Furthermore, telecommuting appears to have a relatively low priority among other corporate initiatives both within and beyond information technology. For example, interest in disaster recovery appears to be higher. Of firms without subscriptions to disaster-recovery services, about 25% said they would likely start them, Schoener said. Of those already using the service, 39% said they'd increase their use.

Meanwhile, companies rate information technology and disaster recovery as relatively unimportant compared with the usual business priorities, Dataquest found. Asked to rank 10 key business issues, companies put high emphasis on revenue growth, cost-cutting and addressing the weakness in the economy. At the bottom was disaster recovery and security, says Schoener; near the bottom were data communications and voice communications.

In general, smaller companies were more interested in telecommuting than larger ones, says Schoener, possibly because larger companies already have telecommuting programs in place.

A strong believer in that theory is Dave Burstein, editor of the

DSL Prime

industry newsletter and author of the forthcoming book

DSL: A Tech Brief

from John Wiley & Sons.

"When you're talking about work stuff, where $50 is not a big issue, the kind of person who might shift to more telecommuting already has this kind of service if he wants it," Burstein says.

Another observer of the broadband market suspects the terrorist attacks will cause a small boost in telecommuting-related revenue, though not immediately.

Cynthia Brumfield, president of the market research firm Broadband Intelligence, says the attack might add 5 to 10 percentage points of growth for cable modems in 2002, which she has estimated to be about 68% over year-end 2001 levels. More likely will be a bump up in 2003, says Brumfield.

But other factors may play a greater role in driving broadband demand than the attacks of Sept. 11.

Burstein, for one, says price is the largest driver. If DSL providers and others were to drop their Internet connection plans below their current $50 per-month levels, consumer demand would boom.

Brumfield says that a force behind cable modem growth will be the implementation of a new cable industry modem standard, expected in 2003 at the earliest, which will boost the speed cable modem subscribers can send data as well as retrieve it. That, says Brumfield, will enable appreciably better videoconferencing from home. Cable operators' offering bulk deals to employers also could drive telecommuting, though Brumfield hasn't heard of any recent transactions.

As to whether companies' ability to supply high-speed Internet access for telecommuting has changed following Sept. 11, the answer appears to be not much.

Verizon

(VZ) - Get Report

, the Baby Bell operating primarily in New York City, says Manhattan DSL provisioning was interrupted temporarily by the World Trade Center disaster and redeployment of services. But business has returned "pretty much back to normal," a spokeswoman says. The post-Sept. 11 resurgence, however, doesn't appear to be related to the World Trade Center attacks, the spokeswoman says. "It's too early to tell," she says, "about the effect of telecommuting on demand."

If anything is driving demand in New York, it's pricing: Verizon has high hopes for signing up new DSL customers in the final quarter of the year through its current promotion. That deal waives an annual commitment, activation fee, termination fee, and features a 30-day money-back guarantee and initial pricing of $30 a month for three months instead of the standard $50.

But squeezed by a slowing economy, other high-speed operators are shying away from offering such price promotions or even offering the service at all in certain areas, to avoid making the necessary capital outlays that take months or years to recoup, if ever. (A recent report by Jefferies & Co. analyst Joseph Bellace, for example, estimates that last year it would have taken a local telco nearly 7 1/2 years to break even on a customer who would probably drop the service before five years; by 2004, Bellace estimates, break-even will take less than a year.)

And from the Federal Communications Commission's perspective, supply is hardly an issue. As of Dec. 31, 2000, says the FCC, more than 96% of the population lives in areas that have at least some high-speed service options. So even though people can and do complain about the quality of their particular high-speed access provider, the fact remains that a lot more people could be subscribing to broadband.