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Some broadband users return to dial-up to cut costs
People are looking for ways to cut nonessential expenses out of their monthly budgets.
That means the cable bill and restaurant tabs may be getting a hard look. But United Online, the Woodland Hills company behind low-cost dial-up Internet access, has noticed something unexpected -- people leaving speedy broadband to return to dial-up.
The company won't release the numbers of people making the switch, but Chief Executive Mark Goldston said a "meaningful percentage" are coming from broadband. He credits that to the bad economy and United Online's new marketing message.
The company has based an ad campaign on weighing speed against savings. An ad for NetZero, one of the company's Internet services, notes users could save almost $300 a year per household by moving to dial-up. NetZero's platinum Internet service is being promoted now for $6.95 a month for a year, a discount of $3 per month.
Of course, it could be argued -- and has been on blogs since the ad started airing -- that people can stick with a broadband connection and get the best deal by going with bundled packages.
Keeping the TV, phone and Internet all on one discounted bill makes more sense for some than paying less for Internet and then having to pay separately for the other two parts of that trifecta.
They further note that people going with dial-up would have to pay more for entertainment they could no longer access online because of the slower speeds.
Goldston said he's not telling anyone they should give up broadband, but if it comes down to a decision to reduce costs at home, switching to dial-up may be a solution.
"A lot of people out there have never downloaded a song, never downloaded a video and never will," he said. "For those people who need to save money, they can use dial-up."
Only 10 percent of Americans are using dial-up, according to a 2008 study by the Pew Internet & American Life Project. The percentage of broadband users rose from 47 percent in 2007 to 55 percent in 2008.
Time Warner Inc.'s AOL, once the king of dial-up with almost 27 million U.S. subscribers at its peak, decided long ago to prop itself up on advertising revenue. Now AOL, whose Internet subscribers are still mainly dial-up customers, counts 6.9 million users.
People aren't so willing to give up their Internet once they start doing more with it.
Priorities are shifting over what's important, said John Horrigan, associate director for research with the Pew Internet Project. More people are saying they couldn't live without the Internet or their cell phones, while fewer are saying they would have a hard time giving up TV or their land-line telephone, he said.
People are becoming dependent on having access to information online and broadband only deepens that dependency, he said.
People who have more years of online experience start to do more online, Horrigan said. They start to send more e-mail, connect with more friends online, gather basic information and shop online.
The wait time for dial-up becomes a hassle, which drives the switch to broadband, he said. Once on broadband, other activities, such as watching video online, become easier.
Despite upgrading to broadband, some people do go back to dial-up.
"They're going to be giving up on 'always-on' access," Horrigan said. Using the Internet will take more effort.
"I imagine it's a big change for people who have established habits around broadband to go back to dial-up," he said.
With the costs of home-schooling a special-needs child, Arlene Dawes of Raleigh, N.C., says dial-up Internet is more attuned to her budget than broadband. Chuck Hester says the high-speed Internet options available in his rural neighborhood near Little Rock, Ark., are too pricey.
Hester says he's been bugging his provider, AT&T Inc., about a fiber-optic connection for two years.
"Dial-up -- it stinks. All the pages that are being written for the Internet now are moving to more and more graphics, more and more pictures, more and more movies," he said. "With dial-up, you can forget about it."
AT&T couldn't comment on Hester's service for privacy reasons but said expanding broadband access is a priority.
Internet providers that have had their dial-up customer base whittled over the past decade see an opportunity to stay in the game by offering the budget-conscious a cheaper option.
"Dial-up is declining overall, but that doesn't mean it's not still a viable business," said Kevin Brand, who is senior vice president of product management at EarthLink Inc. "There's still a big market out there and during these tough times, even customers who have bundles including broadband may be looking at their bill and thinking, 'Do I really need all this?' " Horrigan said dial-up will be around for a long time, in part because it's still the only option in many rural areas.
There are several reasons people on dial-up don't make the switch to broadband. Sure, the price of the service is an important factor, but there's also the startup cost of going online, such as buying a computer, Horrigan said.
Some people also say having Internet access isn't very relevant to their lives, and some avoid a switch to broadband because they worry it would be too technical to troubleshoot, he said.
B. Riley & Co. analyst Mike Crawford pointed out that weak consumer spending has already benefited dial-up providers.
"We're seeing increased demand for low-cost Internet, where a few years ago, everyone was looking to go to high-speed bundle packages," Crawford said. "I think this market is going to exist longer than most people realize."
EarthLink lost more than 380,000 dial-up subscribers, or about 18 percent of the total, in the second half of 2008. But its overall "churn" -- or rate of customers leaving -- declined during the last three months of the year, as the economy worsened.
United Online's churn rate was 4.3 percent in the fourth quarter of 2008, the lowest in the history of the company, Goldston said. The total number of accounts decreased by 19 percent for the year, from 2.15 million to 1.74 million.
"Never in our 10-year history have we had a happier, more satisfied customer base," Goldston said.
