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What Drives High-Speed
Internet Services Home?
A new consumer study conducted by Parks
Associates indicates that although consumers want to have faster access to the Internet,
most of them only think of a 56K modem when upgrading their PCs or modems. Consumers
generally do not know how fast asymmetric digital subscriber line (ADSL) or cable modem
service can be, and they are not willing to pay a high price to acquire these services.
"If telcos and cable companies want to drive high-speed Internet services to the mass
market," says Hongjun Li, Parks Associates and chief designer
of the study, "they must educate consumers and drop prices."
The study, called
Surfing a New Wave: Consumers and Emerging Internet Access
Platforms, includes a telephone survey of 1,520 US households that subscribe to
dial-up Internet service. Parks Associates surveyed these respondents to measure the
market potential of high-speed Internet access platforms. The survey also measures
consumers' interest in non-PC Internet access devices, such as a television set. Below are
some highlights of the study and analysis from Hongjun Li.
Speed of Modems Currently Being Used
As indicated in Figure 1, more than one-quarter (26%) of the subscribers of dial-up
Internet service use a 56K modem. This is an impressive number given the fact that 56K
modems have been around for less than two years. However, a solid 30% do not know the
speed of the modem they use. This indicates that in order to market high-speed
modems/services effectively to consumers, companies need to use simple and non-technical
language that provides consumers with an easy frame of reference.
Figure 1
Consumers Want Faster Speed But Don't
Know How Fast Is Fast
The survey shows that consumers want their modems to be fast. Among those respondents
who use a modem slower than 56 kbps, 38% intend to upgrade to a higher-speed modem. These
consumers account for about 28% of all online subscribers, or 7 million households.
However, 60% of those respondents who intend to upgrade say that they plan to upgrade to a
56K modem. Only nine percent say that they will upgrade to ISDN, and as few as five
percent say that they will upgrade to a modem faster than 128 kbps. This indicates
consumers’ lack of knowledge about cable modems or ADSL, even though 23% of
respondents say they have heard of DSL and 54% say they have heard of cable modems.
Indeed, when asked about the perceived speed of a high-speed modem, only 19% say that a
high-speed modem is ten or more times faster than the phone modem they currently use, and only
4% of respondents think that a high-speed modem is 100 or more times faster.
However, online users do like high speed. Among the three key features of high-speed
modems (fast speed, freeing up the phone line, and constant Internet connection),
consumers are most interested in high speed, giving an average rating of 5.1 on a 7-point
scale, with "7" meaning "very interested." The other two features are
rated as 4.4 and 3.9, respectively.
Figure 2
How Many Consumers Would Switch to a High-Speed Service If It Was
Available Today?
Under the scenario of paying $200 up front on a modem and installation
plus a monthly fee of $39.95, only seven percent of online subscribers (or 1.75 million
consumers nationwide) indicate a very strong likelihood of switching to a high-speed
service (ADSL or cable modem service). This finding indicates that the number of early
adopters is small, which is in line with the adoption rate of cable modem service.
Currently, two-way cable modem service is available to about 20% of online households, and
the adoption rate of cable modem service among online households where cable modem service
is available is only about seven percent. Given the fact that 7 million online subscribers
intend to upgrade their modem, however, the market potential is huge for high-speed
services.
How Much Are Consumers Willing to Pay?
Although consumers like high-speed Internet access, most of them do not
appear to be willing to pay a high price for it. Only six percent state a willingness to
pay $40 or more per month for high-speed service, and eight percent state a willingness to
pay $30 to $39 per month.
The price consumers are willing to pay for a high-speed modem averages $173. However,
they state a willingness to pay $10 more for a modem that supports both dial-up service
and high-speed ADSL service. As to installation, consumers know that they may have to pay
for a technician's service, but the $72 they are willing to pay is still considerably
lower than the typical installation charge for cable modem or ADSL service.
Price elasticity definitely exists. For a monthly charge of $39.95 (plus $200 up front
for a modem and installation), seven percent of respondents indicate a strong likelihood
to switch to high-speed service. When the monthly charge increases to $59.95, however,
only three percent indicate such likelihood.
Figure 3
Which Service Will Win: ADSL or Cable Modem Service?
When everything is equal, telcos’ ADSL service is a winner, with
48% of the online subscribers preferring a phone company and only 26% choosing a cable
company. However, if ADSL costs more, or if cable modem service is faster for the same
price, then cable companies become the preferred service providers to the majority of
respondents. Surprisingly, 29% of respondents still prefer a telco even when its
service cost $10 to $20 more per month. The message is: reputation matters. Figure 4
illustrates preferred service providers under different conditions.
Figure 4
Parks Associates concludes that despite consumers' lack of knowledge about ADSL or
cable modem service, the market potential for them is huge. However, providers of these
services must both educate consumers effectively and lower prices in order to turn the
market potential into an actual mass market, and Cincinnati Bell is certainly moving to
the right direction by charging only $29.95 per month for ADSL.
About Parks Associates: Parks Associates is an
internationally recognized market research and consulting company specializing
in emerging consumer technology products and services. Founded in 1986, Parks
Associates creates research capital for companies ranging from Fortune 500 to
small start-ups through market reports, primary studies, consumer research,
custom research, workshops, executive conferences, and annual service
subscriptions.
The company's expertise includes new media, digital
entertainment and gaming, home networks, Internet and television services,
digital health, mobile applications and services, consumer electronics, and home
control systems and security.
Each year, Parks Associates hosts executive thought
leadership conferences CONNECTIONS™, with support from the Consumer Electronics Association (CEA®), and CONNECTIONS™ Europe. In addition, Parks
Associates produces the online publication Industry Insights in
conjunction with the CONNECTIONS™ Conference series.
http://www.parksassociates.com |
http://www.connectionsconference.com |
http://www.connectionseurope.com
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http://www.connectionsindustryinsights.com
For more information on Parks Associates' multiclient studies,
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