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With the costs of home-schooling a special-needs child, Arlene Dawes of Raleigh, N.C., says dial-up Internet is more attuned to her budget than broadband. Chuck Hester says the high-speed Internet options available in his rural neighborhood near Little Rock, Ark., are too pricey.
Lightning speed Internet is the wave of the future. But in a recession, good old dial-up service might get a longer look. Now Internet providers that have seen their dial-up customer base whittled over the past decade see an opportunity to stay in the game by offering the budget-conscious a cheaper option.
"Dial-up is declining overall, but that doesn't mean it's not still a viable business," said Kevin Brand, senior vice president of product management at EarthLink [ELNK
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]. "There's still a big market out there and during these tough times, even customers who have bundles including broadband may be looking at their bill and thinking, `Do I really need all this?"'
With that in mind, EarthLink recently rolled out a dial-up offer of $7.95 per month, lowering its cheapest service—and undercutting competitors—by $2.
The move to more aggressively court new dial-up users is striking, since it's a market many consumers have fled.
Only 9 percent of Americans were still using dial-up in a study last year by the Pew Internet & American Life Project. Time Warner's [TWX
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] AOL, once the king of dial-up with almost 27 million U.S. subscribers at its peak, decided long ago to prop itself up instead on advertising revenue. Now AOL, whose Internet subscribers are still mainly dial-up customers, counts 6.9 million of them.
United Online, which offers dial-up through its NetZero and Juno services for $9.95 a month, hasn't said whether it will match EarthLink's discount. But the company's ads signal the same approach to the recession.
"The economy is tough," Chief Executive Mark Goldston says in a recent TV commercial, claiming the 56 million American households with broadband could save $16 billion a year by switching to NetZero dial-up. "It comes down the need for speed or the need to save," he says.
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Pew estimates the average monthly bill for broadband users came to $34.50 in 2008. That means for the year, a NetZero subscriber would save nearly $300.
To be sure, broadband will easily remain the bigger business. EarthLink gets 56 percent of its revenue from broadband, even though it has nearly twice as many dial-up subscribers.
Nor is dial-up likely to make broad gains against faster connections.
Dial-up service may be fine for checking e-mail, online shopping or reading the news, but more people than ever are using bandwidth-heavy tasks like streaming video. Cowen & Co. analyst Jim Friedland estimates the dial-up market will have all but vanished six years from now.
Talking to Hester, who says he's been bugging his own provider, AT&T [T
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], about a fiber-optic connection for two years, it's not hard to see why.
"Dial-up—it stinks. All the pages that are being written for the Internet now are moving to more and more graphics, more and more pictures, more and more movies," he said. "With dial-up, you can forget about it." (AT&T couldn't comment on Hester's service for privacy reasons but said expanding broadband access is a priority.)
But even if faster service is more useful, the higher monthly bills are drawing scrutiny these days. Of the people who told Pew they still have dial-up access, 35 percent said faster service is too expensive for them. (Nineteen percent said nothing would persuade them to upgrade.)
B. Riley & Co. analyst Mike Crawford pointed out that weak consumer spending has already benefited dial-up providers. EarthLink lost more than 380,000 dial-up subscribers, or about 18 percent of the total, in the second half of 2008. But its overall "churn"—or rate of customers leaving—declined during the last three months of the year, as the economy worsened.
"We're seeing increased demand for low-cost Internet, where a few years ago, everyone was looking to go to high-speed bundle packages," Crawford said in an interview. "I think this market is going to exist longer than most people realize."
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