AT&T's $5 price hike signals to cable TV firms that it's not interested in a price war, says Jonathan Chaplin, an analyst at JPMorgan.
"AT&T is going to see how the cable industry responds," Chaplin said.
He says phone and cable companies should be able to avert a price war because together they dominate the broadband market.
"The broadband market is a duopoly," he said. "That should be a stable pricing environment. It's in their interests to compete rationally and preserve the economics of the market."
But a different group of providers — wireless firms — could shake up the broadband market. Sprint Nextel (S) and Clearwire (CLWR) are building wireless broadband networks.
Chaplin, though, doesn't expect wireless broadband to compete head-on with DSL or cable. "It's not going to be a substitute," he said.
That's because DSL and cable downloads will remain much faster than wireless broadband, he says.
Instead of price cuts, analysts say cable and phone companies will offer users faster Internet downloads, making it easier to view movies and more.
AT&T plans to increase speeds to 10 megabits per second from 6 mbps where it sells its U-verse data and TV services. AT&T says U-verse will be available to about 17 million homes by year-end, up from some 8 million now.
Last month, Verizon Communications (VZ) said it's hiking its DSL speeds to 7 mbps from 3 mbps.
U.S. broadband growth peaked in 2006, when the 20 biggest phone and cable companies added 10.4 million high-speed Internet customers, says Leichtman Research Group. Final figures will show they added 9.3 million in '07, LRG says.
"We're not at a saturation point for broadband yet," said Bruce Leichtman, head of LRG.
He says that 82% of U.S. households have a computer and three-quarters of them go online. But the number of online households with broadband is less than 60%, he says.
"There's still opportunity out there," Leichtman said.