AT&T DSL: How Low Will They Go?

Joseph Laszlo | February 03, 2006, 03:23 PM

Just when you think introductory rates for DSL can't get cheaper, AT&T this week pushes its price for its Express tier of DSL (for new customers, ordered online) down to $12.99/month for the first year of service.

That's pretty extraordinary...it's now cheaper to get DSL than to get NetZero with Accelerator. Also it's rare to see a company engage in a price war with itself.

AT&T has said a little publicly about why it might be worth taking DSL pricing so low: When customers add DSL to a basic package, churn falls 40% and ARPU increases 117% and when customers add DSL and Cingular, churn falls 63% and ARPU increases 366%. (from an e-mail with the pricing news release).

So at least in part this is a wireline voice retention play.

Also, of course, it's a continued market share play. AT&T feels, probably rightly, like it needs to get as many DSL subs in the next year or 2 as possible, to slow cable erosion, and also in front of any possible new free/cheap muni or other wi-fi efforts.

So, will prices go even lower? I'm not sure AT&T stands to gain much from cutting still more. There's probably some psychological barrier at $10, but below that I can also see the consumer starting to suspect...anything that deeply discounted's gotta have something wrong with it.

I think Verizon will consider following suit, at least with its entry DSL tier. The cable guys probably won't, though I've been saying for a while now that they should to maintain acquisition momentum.

I still don't think super-cheap DSL is going to inspire a ton of churn from cable, though. People love broadband once they have it; in a survey at the end of 2005, about 40% of consumers with broadband said NOTHING, not cheaper service or faster speeds or better features, would make them switch. That's nice loyalty.