Cable Modems to Face Challenge

Cable modems currently control approximately 90 percent of the residential high-speed Internet access market in the US, but will face a challenge at the beginning of the next century, according to The Strategis Group.

A study by The Stratgeis Group titled “High-Speed Internet: Demand, Technology, and Strategy” predicts that the cable modem market share will fall to 68 percent of the residential market by 2003. The reason for the fall will be the emergence of DSL as a price-competitive market by the year 2002, the study says. DSL is already a viable option for the business data market, but the development of “G-Lite” (splitterless DSL) will push the technology into the residential market, according to the study.

Cable modem service is priced more competitively than DSL right now, and DSL prices will have to come down if the two are close substitutes. As might be expected, the percentage of users interested in high-speed Internet access goes up as the cost of the access goes down (see table).

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“DSL providers must either justify $20 to $30 price premiums, bring price in line with cable, or accept the role of niche provider in the residential market,” said John Zahurancik of The Strategis Group’s Internet and Competitive Telephony Group. “We think recent LEC price announcements signal that DSL prices are on their way to the $40 a month level. The question is how quickly will they fall?”