New Web Survival Guide

Broadband Narrows

As if you needed more to worry about: The high-tech economy's drift into the doldrums has also affected the availability and price of broadband Net connections.

For several years now, PC World has noted the advantages of a Digital Subscriber Line over cable modem service--such as more-reliable performance and better security. Unfortunately, the DSL industry has been hit hard by the changing economic climate of recent months. In the past year, numerous national and regional DSL providers have gone bankrupt, including 360networks, PSINet, Rhythms NetConnections, and Winstar Communications. Another major player, NorthPoint Communications, had upward of 100,000 business customers when it abruptly shut down, leaving its clients in the cold land of dial-up connections.

Some DSL providers are accusing the major phone companies of trying to squeeze them out of business. The Baby Bells, such as Verizon and SBC's Pacific Bell, are required by law to provide leased phone lines and other services to third-party DSL providers. But that doesn't mean they have to make it easy--after all, the Baby Bells offer their own, competing DSL plans. Last summer, several ISPs in California filed a complaint with regulators, charging that Pacific Bell was unfairly trying to stifle competition within the high-speed Internet market.

While this is clearly a dire situation for DSL providers, consumers are adversely affected, too. Stretched as thin as they are, many remaining DSL providers are having trouble providing basic customer support. And long-term, lack of competition is likely to mean higher prices, poorer service, and fewer promotional perks for consumers.

"I think it's less a problem for residential consumers than for small businesses," says Lynda Starr, Probe Research's vice president of U.S. carrier research. "When a provider like NorthPoint or Rhythms goes down, it has a large impact, obviously."

Starr says that the Baby Bells are dragging their feet because they're essentially monopolies that have been told to open their lines to competitors.

"The Bells are stuck in the middle. When you open yourself to competition, there's only one place your market share can go, and that's down. It's like a child's reaction, you know: 'You can make me do it, but not happily.'"

Making matters worse, DSL troubles have left cable modem services with less competition than expected. The recent spate of substantial price hikes (up to 25 percent) by major providers is likely a result of that lack of competition.

The cable industry may consolidate further. Cable giant Comcast tried to buy out AT&T Broadband last summer, and AOL Time Warner is rumored to be planning a bid. One firm could end up controlling a huge percentage of broadband access--and that's bad news for users.

So where does all this leave broadband customers? Forced to choose from among a dwindling number of DSL providers, consolidating cable modem services, and a handful of distant-third options such as satellite connections, users may want to play it safe by going with a big company that's unlikely to fold. Kathie Hackler, senior analyst with Gartner, suggests that having many options among smaller carriers is probably not as important for consumers as being able to pick what they want from a handful of reliable, competing broadband providers.

"If you use the long-distance telephone market as a historical example, after divestiture there were thousands of little long-distance companies," Hacker says. "Over time they came together, and you ended up with a top three and some secondary players. That's likely what's going to happen in this environment as well."