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Contact Information

Leslie Bonacum
847-267-7153
mediahelp@cch.com
Neil Allen
847-267-2179
neil.allen@wolterskluwer.com

Free ISPs Fade From The Scene As High-speed DSL Installations Finally Draw Promised Subscribership

68.7 Million Consumers Now Online, 52 Percent More Than Year-End 1999

(WASHINGTON, D.C., January 30, 2001) – The tide turned in the online access market in 2000, according to Telecommunications Reports International (TRI), the leading telecommunications information publisher and a unit of CCH INCORPORATED (CCH). While digital subscriber line (DSL) access was slow to take off, it ended the year with tremendous strength, according to fourth quarter 2000 results from TR’s Online Census. On the other hand, free Internet service providers (ISPs) started the year on a high and now seem to be bottoming out.

In 2000, the overall online market showed a healthy 52-percent growth with 68.7 million consumers now subscribing to one of the major ISPs via paid or free dial-up access, Internet television, digital subscriber line (DSL) or cable modem services. That compares to 45.2 million online customers a year ago. While growth during 2000 was strong overall, less than 9 percent of the new subscribership came online during the last three months of the year, according the TR’s Online Census.

The main area of growth in the fourth quarter comes in DSL access, with more than 2.3 million consumers now subscribing to DSL, nearly twice as many as at the end of the third quarter. Consumers using cable-modem access also increased during the last quarter, bringing the total number of subscribers now connecting via high-speed access (cable-modem or DSL) to nearly 10 percent of the overall online market, according to the study. TR’s Online Census, conducted quarterly since 1980, is the definitive survey of online access methods and trends.

On the flip side, just as fast as the free, ad-supported Internet service providers (ISPs) captured the attention of consumers earlier in the year, by the end of 2000 consumers seemed to have lost interest, with many looking at the high-speed alternatives.

"The online industry is still relatively young and the technology continues to evolve," said Amy Fickling, managing editor of TR’s Online Census. "As a result, we can expect it will be a continuous challenge for ISPs to figure out what features and access methods attract customers and at what price points."

Online Growth by Category

Service Category

Number of Customers

Growth During 4Q 2000

Paid Dial-Up ISP

46,097,054

9.15%

Free ISPs (active subscribers)

14,850,000

1.36%

Cable Modems

4,178,550

19.21%

Internet TV

1,200,000

5%

Digital Subscriber Line

2,357,500

86.47%

Total

68,683,104

8.59%

Source: TR’s Online Census,
Telecommunications Reports International

Free-Falling ISPs

Free ISPs enjoyed strong growth in the number of subscribers signing on during the first half of the year. However, a market shakeout late in the year has left all but a few viable free ISPs remaining.

In the fourth quarter, free ISPs did see a very slight gain of 1 percent in the number of active subscribers, according to TR’s Online Census. However, late in the quarter, the market took a turn, with major free ISPs like Alta Vista and 1stUp.com announcing they would shut down their free ISP operations by the end of the year. Others, like NetZero and BlueLight.com (which acquired Spinway), are revamping their services and will be charging subscribers that exceed a monthly usage limit.

"Most of the free ISPs have acknowledged that only about 40 to 50 percent of their registered subscribers are active users, making it apparent that while there were no barriers to sign up for free access, there were also no real incentives to use the service regularly," said Fickling. "As these services were ad-supported, it’s certainly a problem for advertisers if the consumers aren’t online viewing their ads."

Paid Dial-Up ISPs Hold Their Own, But Price War May Be Imminent

While paid dial-up ISP remains the most popular access method, the category only reported modest growth of about 9 percent during the fourth quarter, reaching more than 46 million consumers.

Leading the paid dial-up ISP pack is America Online (AOL), with 26.5 million customers registered by the end of the year making it the dominant ISP with a 39-percent share of the overall consumer base. EarthLink, MSN Internet Access, CompuServe and Prodigy round out the top five paid dial-up ISPs.

How consumers and competitors will react to AOL’s anticipated 8-percent price increase will be closely watched this year. It may be that not only is free ISP service going away, but that paid dial-up service will get more expensive, as it is likely that AOL competitors would follow its lead, according to the study.

High-Speed Access Outpaces the Rest

Those consumers who aren’t price conscious seem to be heading for high-speed alternatives. TR’s Online Census finds this growth comes despite cutbacks and financial failings among some of the major DSL providers.

During the fourth quarter, the DSL market, again, captured the greatest growth among all categories, with an 86-percent increase in new customers. SBC, realizing a 95-percent growth rate in the fourth quarter, further strengthened its position as the dominant DSL provider with 800,000 subscribers. Verizon, Qwest, Covad and EarthLink round out the top-five providers, according to TR’s Online Census.

While paling in comparison to the DSL growth rate, cable-modem still reported a 19-percent growth rate for the fourth quarter. Cable-modem also remains the most popular high-speed access method, with nearly 4.2 million customers, compared to DSL, with fewer than 2.4 million customers.

According to the survey, @home, carried by TCI, Comcast and Cox, and Road Runner, carried by Time Warner/AT&T, have a virtual duopoly with nearly 97 percent of the cable-modem customer base.

However, among the stipulations of the AOL-Time Warner (TW) merger were that Time Warner Cable systems be open to alternative ISPs, in addition to Road Runner, which AOL-TW owns in part. As a result, Time Warner Cable customers using high-speed cable access will have a choice of either AOL or EarthLink as their ISP by the second half of this year. Also, Time Warner is required to restructure its exclusive agreement with Road Runner and has announced that Road Runner will be offered on AT&T Broadband’s cable lines starting in April 2001, according to TR’s Online Census.

Internet TV Still Around…For Those Who Are Interested

While the move to high-speed access is more like running, the move to Internet TV remains a leisurely walk. The first half of 2000 was marked by no measurable change in the number of subscribers.

During the third quarter, Internet TV reported a 2.5-percent increase in subscribers, and for the fourth quarter a 5-percent increase. However, with only 1.2 million subscribers, Internet TV remains the least common access method, according to TR’s Online Census. The Internet TV space remains dominated by Microsoft’s WebTV, which commands nearly the entire market.

To Obtain TR’s Online Census

Annual subscriptions to the quarterly online census are available for an introductory price of $149 by calling 1-800-822-6338.

About TRI and CCH INCORPORATED

Telecommunications Reports International, based in Washington, D.C., is the most respected provider of telecommunications industry news and analysis. Since 1934, executives and policy-makers have relied on TRI’s comprehensive coverage and analysis of major industry issues and events. TRI is part of the Business and Finance Group at CCH INCORPORATED, a leading provider of tax and business law information and software. The TRI web site can be accessed at www.tr.com.

CCH has served more than four generations of business professionals and their clients, covering a wide range of legal and compliance topics including securities, insurance, banking, telecommunications, trade regulations and government contracting. CCH is a wholly owned subsidiary of Wolters Kluwer North America. The CCH web site can be accessed at www.cch.com. The CCH Business and Finance Group web site can be accessed at http://business.cch.com.

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EDITORS NOTE: For members of the press, a complimentary copy of TR’s Online Census is available by contacting Leslie Bonacum at 847-267-7153.

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