• by March 11, 2004

Broadband usage in several major U.S. markets is poised to overtake dial-up Internet usage, according to a report released Wednesday by comScore Networks. The Internet audience researcher's report analyzed broadband penetration at the national and local market levels during the fourth quarter of 2003.

It found that broadband in the New York, Los Angeles, Boston, and San Francisco markets is poised to surge past pokey dial-up usage. Furthermore, the report revealed that San Diego has become the first major metro market in which most Internet users access the Web via a broadband connection. Among the 50 biggest U.S. markets, San Diego, Boston, and New York topped the list of markets with the most broadband connections.

The findings, from a broadband penetration study conducted by The Leichtman Research Group and released earlier this week, also confirm steady growth in the category. That study found that 24.6 million U.S. households now subscribe to high-speed Internet. Among the 20 top high-speed Internet providers in the United States, which represent 98 percent of the market, 7.4 million high-speed subscribers were added in 2003 (MediaDailyNews, March 10).

comScore found that more than one in four Internet users reported that they intend to switch Internet Service Providers (ISPs) in the next six months--the majority plan to choose a broadband provider. Speed was most often cited as the factor in selecting a different ISP.

Nationally, comScore reported that 36 percent of online users accessed the Web via a high-speed connection in the fourth quarter of 2003, up 2 percent from 34 percent in the third quarter. Cable kingpin Comcast holds the dominant position in the broadband market, providing access to about 19 percent of broadband users and 7 percent of all online users. SBC, the largest provider of Digital Subscriber Line services (DSL) in the United States, accounts for 11 percent of consumer broadband connections and 6 percent of total ISP subscriptions.

The report found that despite its woes, America Online continues to offer Internet access, both narrowband and broadband, to more people in the United States than any other provider--with a 28 percent share of the market. Cut-rate provider United Online commands 6 percent of the ISP market, tied with Microsoft Corp.'s MSN and SBC.

"Broadband continues to grow, and is at a level now where it's having an impact on people's behavior," said Gian Fulgoni, chairman-comScore Networks. "People are spending more time online, and they tend to buy more. A lot of the big portals are offering a lot more subscription services that are tailored to broadband," Fulgoni noted, citing Yahoo! and AOL's various premium offerings. The big portals, assorted Web publishers, and companies like RealNetworks have dangled premium content services to broadband subscribers in a bid to generate more revenue.

"It's pretty clear that broadband is one of the main drivers in the continued growth in online spending," Fulgoni added. That spending is not only coming in the form of increased consumer purchasing, but also online ad spending by marketers.

The study found that Boston, New York, San Francisco, and Los Angeles, rank among the top ten markets for broadband penetration. Only three top-25 markets (St. Louis, Sacramento, and Indianapolis) were ranked among the ten markets with the lowest broadband penetration. ComScore noted that the U.S. online population is now 150 million people--33 percent of 'Net households have broadband connections. "We've recorded another milestone, with broadband accounting for more than half of a major U.S. market's Internet connections," noted Russ Fradin, executive-VP, comScore Networks.

Other notable findings are that Albuquerque-Santa Fe, N.M. 76 percent), Grand Rapids, Mich. (70 percent), Harrisburg, Pa. (70 percent), and Indianapolis, Ind. (70 percent) rank as the top four narrowband markets. And in the broadband world, 63 percent of broadband subscriptions are cable connections, while DSL subscriptions account for nearly 37 percent of the high-speed market.

In nine of the ten markets with the highest broadband penetration, the majority of subscribers with a high-speed connection use cable modems. San Francisco represents the exception to this pattern, where nearly 60 percent of broadband subscriptions are DSL accounts. The comScore findings in this regard are similar to those presented by The Leichtman Research Group study.

comScore notes that dial-up isn't disappearing any time soon. The market continues to thrive, in part because of aggressive pricing from providers such as United Online. "You would think that anyone with a dial-up service would be hurting, but United Online is still in it," Fulgoni commented. Many dial-up consumers don't see the value in paying any more than what they are currently paying for Internet access, noted Graham Mudd, comScore analyst, adding: "There are two populations emerging--one that is value-based and less speed-driven, and another that's using the Internet in a far more dynamic way and requires speed."

ComScore said it determined market shares based on subscriber counts through which direct Internet access is provided. The data does not take into account "Bring Your Own Access" subscriptions.