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Leslie Bonacum
Neil Allen

Failure Of Free Isps Triggers First-ever Dip In Number Of Online Users

New DSL Subscribership Lags as Industry Faces Shakeout;
Cable Modem Continues to Boom

(WASHINGTON, D.C., May 1, 2001) – For the first time in the 21-year history of TR’s Online Census, the overall number of U.S. customers subscribing to online services has declined, due largely to the failure of the free ISP as a viable business model. According to the survey, compiled by Telecommunications Reports International (TRI), the leading telecommunications information publisher and a unit of CCH INCORPORATED (CCH), the number of online household subscribers dropped a slight .29 percent during the first quarter of 2001 to just under 68.5 million. The study indicates that this drop was due to subscriber accounts lost when the free Internet Service Provider (ISP) market saw several companies cease operation. The number of subscribers in that sector plummeted more than 19 percent during the first quarter.

Also slowing down was the number of new users of digital subscriber line (DSL) access. While DSL saw tremendous growth of more than 86 percent during the last quarter of 2000, the first quarter 2001 growth in subscribers slowed to a near stand-still of just 2 percent amidst chaos in the DSL market, according to TR’s Online Census.

Shoring up the online market were new subscribers to cable modem services and paid dial-up ISPs. The survey reports the cable modem market continued to see a strong growth rate of 18 percent during the first quarter while paid dial-up ISP users grew nearly 8 percent.

"During the first quarter, the online industry was faced with several very significant challenges. First, free ISPs could not sustain business and keep even active customers onboard while advertising dried up, and the DSL market, which had been so strongly touted, began to really struggle," said Amy Fickling, managing editor of TR’s Online Census. "But, while growth overall during the first quarter was stagnant, the online market is still showing pockets of growth. Over the past 12 months, it enjoyed growth of 36 percent despite the problems within the DSL and free ISP sectors."

Online Growth by Category

Service Category

Number of Customers

Growth During 1Q 2001

Paid Dial-Up ISP



Free ISPs (active subscribers)



Cable Modems



Internet TV



Digital Subscriber Line



Satellite (new category)






Source: TR’s Online Census,
Telecommunications Reports International

Traditional Dial-Up Access: Free’s Not Always Easy

Just a year ago, free ISPs were basking in some of the strongest growth rates in the online industry. This year, they’re off to a significantly different start, recording a 19-percent loss in the number of active subscribers and bringing down the number of active subscribers to the remaining free ISPs to just 10.26 million, according to the survey findings.

After the shakeout late last year, NetZero seems to be the only winner in this market, picking up a number of the no-fee customers abandoned by the shuttered ISPs, according to TR’s Online Census. On the paid dial-up access side, the overall growth rate was more than 7 percent, with these providers now reaching 49.6 million consumers. While the survey found that most traditional ISPs reported slow growth during the usually booming post-holiday online season, Microsoft Network (MSN) saw a 25-percent increase to 5,000,000 in its number of subscribers.

MSN now is the number-two provider after AOL. Rounding out the top five dial-up ISPs are EarthLink, NetZero and Juno Web, which still includes two large free ISPs.

Cable-Modem and DSL Take Different Paths

The financial failing of such DSL players as NorthPoint Communications and Winfire "free DSL" and cutbacks at others seems to have caught up with the industry. While DSL enjoyed an 86-percent growth rate during the last quarter of last year, TR’s Online Census reports a growth rate of just 2 percent for the first quarter of 2001, with DSL now reaching 2.4 million subscribers.

Verizon, with a 33-percent growth rate to 720,000 subscribers, was the only major DSL provider to report a significant number of new users, and it surpassed SBC as the dominant DSL provider, as SBC reported a 25-percent decline in the number of subscribers, down to 600,000. Rounding out the top five are Covad, Qwest and EarthLink, according to TR’s Online Census.

While DSL struggled, cable modem has picked up the broadband access market, reporting an 18-percent growth rate during the first quarter and now reaching nearly 5 million subscribers. Road Runner, the number-two player in the market after @home, attributes some of its 63-percent growth rate during the first quarter to the volatility in the DSL market.

Internet TV Still Struggles While Satellite Arrives on the Scene

The Internet TV market saw no growth during the quarter and could decline as the major players shift their focus.

Microsoft’s WebTV, long the leader in the small Internet TV sector, is being phased out in favor of UltimateTV. America Online also is looking at new access alternatives beyond AOL-TV to attract subscribers, including the AOL Plus venture in connection with Hughes Network Systems’ satellite service.

With Hughes DirecPC reaching 50,000 subscribers and Starband at 25,000, TR’s Online Census will now be tracking the satellite ISPs as part of the survey.

To Obtain TR’s Online Census

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


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

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 The CCH Business and Finance Group web site can be accessed at

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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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