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Friday, 25 January, 2002, 10:01 GMT
Trouble ahead for broadband providers
Ferrari racing car
Fast and expensive: ADSL is the Ferrari of the internet
Companies offering cheap broadband services could find themselves in financial trouble very quickly.

This is the view of internet service provider Zen Internet, which in one of a handful of operators offering self-install ADSL.

Self-install is a new service from BT, which offers customers the chance to install their own ADSL without the need for an engineer.

It has been lauded as the new way forward for broadband, offering affordable high-speed net access for the mass market for the first time.

A few ISPs have already gone under as a result of ADSL and we expect to see a few more go under in the next few months

Ian Buckley
Zen Internet
While the DIY package slashes the 150 installation fee to just 50, Zen's marketing manager Ian Buckley is not convinced ISPs will be able to afford to lower the price much below the current average of 40 a month.

"We don't see the fabled 30 a month as viable. We pay 25 to BT and there will be little profit in there to cover other costs like the expense of backbone bandwidth," said Mr Buckley.

Zen Internet's self-install services costs 40 a month.

Price too high

"You could take the option of a lower price in order to gain lots of customers but I suspect you will come a cropper. A few ISPs have already gone under as a result of ADSL and we expect to see a few more go under in the next few months," he added.

The scenario seems eerily familiar. In the summer of 2000 hundreds of ISPs rushed out unmetered internet services.

These allowed users to pay a flat-rate monthly fee rather than per minute.

But many ISPs found they were financially unsustainable. CallNet, AltaVista and LineOne were among those forced to cancel services.

Currently around five ISPs are offering self-install ADSL, including PlusNet, Zen, Nildram and Freedom2Surf. The big players like AOL and Freeserve have tested the service but so far have not rolled out commercial services.

Marketing broadband

Price is the main stumbling block said AOL spokesman Matt Peacock.

"The wholesale price of 25 translates in retail terms to way the wrong side of 35 and our research suggests mass market take-up will need the price to be between 20 and 30," he says.

The fact that ADSL is currently not available to 35% of the population is another issue.

"We have to find a way of marketing this service without irritating the customers who can't get it," he points out.

Protecting its brand is crucial, said Mr Peacock and AOL is not yet convinced that BT's provisioning system, which has had problems coping with the current demand for ADSL, will cope with the volume of customers AOL may throw at it.

Customer support

"It has got much better but we can't expose customers to anything which isn't totally foolproof," he said.

Zen's Mr Buckley suspects there is another reason the big players like AOL, Freeserve and BTopenworld are delaying rolling out DIY ADSL.

"One of the main reasons is customer support. They will have thousands of customers ringing in with a lot of different issues and that will need a lot of support," he said.

Of the smaller players some are currently offering self-install ADSL at the much-desired 30 a month price. Freedom2Surf is one of them and according to managing director Chris Panayis, is profitable.

"One of the reasons for this is that we build our own network so we don't have to buy backbone from other providers," he said.

Mr Panayis believes it will be a struggle for the larger ISPs to roll out the service cheaply.

"The bigger guys are only interested in hundreds of thousands of users and the price point isn't low enough for true mass market," he said.

Consumers are crying out for broadband according to AOL. A survey of thousands of their users showed that 85% wanted broadband if it comes at the right price.

In Belgium, ADSL costs around 23 per month and 40% of homes now have high-speed connections. In the UK just 1% of households have an ADSL service.

See also:

18 Jan 02 | Business
BT told to lower broadband cost
15 Jan 02 | Business
NTL boosts broadband plans
14 Jan 02 | Sci/Tech
Will 2002 be the year of broadband?
20 Dec 01 | Business
Sony targets broadband for PS2
19 Dec 01 | Sci/Tech
Go-ahead for DIY broadband
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