Speed, Options Spur Retail Demand For Broadband Access

By Greg Scoblete On Jan 29 2001 - 8:00am

Talk to retailers who sell broadband Internet access in any of its manifestations (wireless, satellite, DSL or cable), and they'll pretty much draw the same analogy: the floodgates are opening.

"It's not going to take a whole lot of selling, there is an amazing amount of pent-up demand," said Peter Bosse, Best Buy's VP/general manager of Internet and Broadband.

"People are choosing where they live according to whether or not they can have high-speed connectivity to the Internet,'' added Dave Martella, RadioShack's VP of Emerging Technology and Strategic Development.

The potential for retailers will only grow. Cahners In-Stat Group, owned by TWICE parent Cahners Business Information, expects the number of consumer cable modem and DSL subscribers to grow 77 percent between 1999 and 2004. Subscriber revenue from these two services will also grow from just over $1 billion in 1999 to $13.3 billion by 2004.

Best Buy, in conjunction with SWR Worldwide, conducted a survey of 1,000 people and found considerable potential for broadband sales. Of homes with Internet access, the survey found, 77 percent use a dial-up modem.

Retail distribution presents challenges, however. The foremost challenge, especially for multimarket retailers, is the multiplicity of service providers, not all of which offer service in all of a chain's markets. And within a single market, DSL availability varies depending on a home's location within the phone company's territory.

To meet such challenges head-on, Best Buy recently announced in-store interactive displays that let consumers choose broadband options based on where they live. The retailer also announced new relationships with MSN, Flashcom and Sprint to extend the types and availability of broadband to a wider range of customers.

MSN's HighSpeed (DSL) service is available in 257 stores and costs $39.95 per month with free modem and installation. Installation is done mostly by the service providers, said Bosse, though Best Buy is investigating the addition of its own installation capabilities.

Flashcom offers DSL at a comparable monthly charge through 219 Best Buy stores, and DirecPC (available at all Best Buy locations for a year) provides satellite connectivity from $19.99 per month to $39.99 per month.

AT&T Broadband's cable service runs Best Buy customers $29.95 for a starter kit and then $29.95 a month if they own the modem. This service comes with free installation and is available in 23 stores.

Sprint's Broadband Direct is an MMDS (Multichannel Multipoint Distribution Service) fixed-wireless service, which costs $39.95 a month with free installation and variable hardware prices dependent upon the length of a contract. This service is available in Best Buy stores in Phoenix.

Sprint is also rolling out Broadband Direct in Tucson, San Jose, Houston and Detroit through a combination of direct sales and retail partnerships, the telecom company said.

At Best Buy, the retailer has a variety of revenue-stream arrangements with broadband suppliers. Although Bosse declined to go into specifics, he did say that Best Buy negotiated to ensure that the customer pays the same price whether they're shopping at his store or going direct from the supplier.

"The benefit of coming to Best Buy," said Bosse, "is having a variety of options to compare and choose from and one-stop-shopping. We're looking to learn from our initial offering so that we can scale in a big way in the future" when demand picks up. As sales increase, he said, more store space and resources will be dedicated to selling broadband.

RadioShack's Martella agreed that broadband choice is important, but he noted, "We're not interested in having 20-30 broadband providers in our stores. What we want to do is sample the various providers, do a preselection, and really narrow it down to give our customers a good selection. They'll have choice, but it will be an informed choice."

For now, the choices at RadioShack include DSL and satellite access through a year-old deal with MSN and a recently announced partnership with Excite@ Home for self-install cable access. RadioShack is selling an RCA cable modem, an Excite@Home QuickStart kit with interactive CD-ROM, and the first month of service free, for $99.98 after instant in-store rebates. The monthly service fee is $32.95 and is set by individual cable operators, not Excite@Home.

The kit has been introduced to the Northeast markets in more than 150 stores, with a wider rollout with other Excite @Home cable partners (AT&T Broadband and Cox Communications) planned for next year.

RadioShack also has a fleet of some 2,000 trucks nationally to handle all appropriate installations for its broadband customers.

RadioShack is currently working on plans to offer a fixed-wireless MMDS service by the end of next year (possibly through Sprint and other regional providers) with the goal of having all four forms of access sold in all RadioShack locations within three years.

"For this to be a mass market, people have to see it to believe it," Martella said. "One thing we've done through the infrastructure investments of our partners is add the ability to demonstrate it in our stores. We expect to have all of our stores offering the four modes of high-speed access within the next three years, and probably sooner."

Broadband access isn't just for the customer's benefit, however. It also connects close to 80 percent of RadioShack outlets to RadioShack online, a knowledge base that remote stores can tap for answers, which should be in all RadioShack outlets by June.

For RadioShack, compensation for consumer sales takes the form of hardware margins, a customer-acquisition commission, and a small percentage of the monthly bill the customer pays to the provider.

New York-area retailer The Wiz also claims great broadband success, through sales of Optimum Online cable Internet access. The service is available from parent company Cablevision, which also sells the service by phone and online.

According to Wiz chief operations officer Norman Goldberg, 50 percent of all Optimum Online subscribers come through The Wiz retail locations as a result of the large amount of floor space and trained personnel dedicated to selling the product, as well as the close relationship between Cablevision and The Wiz.

Through their relationship, the companies offered a variety of holiday specials to drive new subscribers. The promotions included free cable modems (normally $299) if a consumer spent $100 at The Wiz.

Sprint, which initially targeted about 30 markets for its MMDS rollout by the end of last year, has reined in its plans to focus on 13 markets. Sprint views the rollout as a test-bed to see what people will pay, what services they'll bundle with it, and what profit margin is realistic before a full rollout commences.

Sprint plans to wait until the third quarter to assess the market on a region-by-region basis. Considerations include the potential to offer wireless voice-over-IP service.

For its part, AT&T Wireless offers fixed-wireless AT&T Digital Broadband in western markets and expects its service to be available to 15 million homes in 40 markets by 2002. The company sells direct to consumers and hasn't announced whether it will add distribution through retail or through AT&T Wireless stores.

Whether other carriers exclude retail or not, retailers expect larger chunks of their profits to come from selling broadband service and hardware.