Recession Could Lengthen the Twilight of Dial-Up

By: Andrew Vanacore
By: Andrew Vanacore
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.

ADVANCE FOR FEB. 17; chart shows percentage of americans using broadband and dial up since


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 Inc. "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 Inc.'s 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.

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 Inc., 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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