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DSL/Cable Modem Makers Ready To Pounce

Broadband modem providers are taking a glass-half-full approach to the flood of $400 ISP rebates that are binding thousands of customers to long-term Internet contracts and standard 56K V.90 modems.

DSL and cable modem vendors view the deals as bringing in first-time PC buyers, which will eventually help expand their customer base. In addition, the general view is that people who sign up for standard Internet service this year will upgrade to cable or DSL service through their ISP, or buy out their contract and switch to broadband access when it becomes widely available.

The exact number of consumers who have signed up for these rebates has not been released by the ISPs, but retailers said PC sales dramatically increased in June and July when the rebates became available.

“Those ISP customers today will be our customers tomorrow,” said Mike Pula, 3Com’s director of product management, who noted that PC penetration just surpassed the 50% mark, with about 35% of those computers being connected to the Internet.

At least one industry observer believes the DSL and cable companies should be concerned. “This has now become a race to lock up the customer base by the Internet providers. Once they have them signed for three years they are effectively stuck,” said Nathan Morton, CEO of Hand Technologies and former president of Computer City.

However, the DSL and cable companies see the deals as building an installed base of Internet junkies.

Regarding ISPs having a lock on consumers, Al Brigard, 3Com’s director of business marketing and development, said that if technological advances “stopped today that would be true. But with DSL coming out people can convert to it and keep up technologically.”

Because newcomers initially will use 56K modems and less powerful computers to access the net, vendors see the ISP rebate customers quickly tiring of slow connectivity rates.

Or as Gary Granger, Motorola’s director of marketing operations put it, the rebates will “get people on the net, get them familiar with it, and get them to want more.”

This could also prove to be a boon for PC makers. The entry-level computers being sold to first-time buyers will not have enough processing power to handle the flood of Internet data that broadband access will supply, so these consumers will have to upgrade their PC system at some point, said 3Com’s Pula.

Currently, only a small percentage of web surfers use DSL or cable modems. According to data from Lucent Technologies, about 70,000 homes are wired for DSL access, while around 1.9 million have access to the technology but do not use it.

Motorola’s Granger said slightly more than 1 million consumers use cable modems, but the potential market is huge because 70 million U.S. households receive cable TV.

The primary drawback for cable and DSL is that both are still not widely available because local cable and telephone companies have been slow in building the necessary infrastructure.

Tony Grewe, Lucent’s director of strategy and business development, said DSL should take off as a consumer product this fall when models using the G.Lite chipset become available. He expects more than 1 million of these modems to ship within the first year.