From our friends at Raging Bull:
By: KingSteve
Reply To: None Friday, 31 Mar 2000 at 5:04 PM EST
Post # of 43387
Broadband Service
By George Mannes
Senior Writer
3/31/00 3:46 PM ET
Think $35 or $40 is too much to pay for high-speed
cable modem service from Excite@Home
(ATHM:Nasdaq - news - boards)? Well, just wait a few
months and you might be able to get it for $20.
Starting in the fourth quarter, the company plans to
test-market a cut-rate version of its broadband cable
service, Excite@Home CEO George Bell said Thursday
night. Designed to compete with America Online
(AOL:NYSE - news - boards), the unnamed service will
feature a connection speed that's 10 times faster than
AOL's dial-up service but slower than Excite@Home's
current cable modems, at about half the price of the
flagship @Home service, Bell says.
Several institutional shareholders of Excite@Home said
they'd heard rumors that the company might launch
such a product, but had never gotten such a
confirmation from the company itself.
More Options
The proposed "fighter brand," as Bell describes it, is
evidence that Excite@Home is hoping to lure Internet
users with a variety of brands and pricing options. It's
also a possible harbinger of upcoming price wars
among Excite@Home, AOL and other Internet
companies over the cost of both broadband and
traditional dial-up, or narrowband, access.
As Bell explains, what the company is doing is
planning an array of products to capture customers at
different stages in their lives. He calls the strategy
similar to that of General Motors (GM:NYSE - news -
boards), which might sell a convertible to a young
car-buyer, a station wagon later in that person's life and
a Cadillac when he or she reaches 50.
The strategy is also similar to that of AOL, which
markets its AOL service as a full-priced brand and
CompuServe as a cut-rate alternative.
Excite@Home's offerings already range from the
FreeLane free dial-up Internet access service and its
Excite and Blue Mountain Arts Web properties to its
$40-per-month @Home 2000 broadband service. A
less expensive broadband service, says Bell, is a
natural fit among an array of products such as these.
What Might Change
Though the new service would presumably use the
same infrastructure as the current @Home service, the
company could find several ways to differentiate it from
the costlier version in addition to providing a lower data
rate, Bell says. It is possible that subscribers would
have fewer email addresses per account, be able to
connect fewer computers to the connection per
household and have a different level of customer service
than the more expensive offering, he says.
Buy-siders were generally positive about the
prospective service. "I think it's a natural progression. I
think it's pretty smart," says Marc Weiss, senior
technology analyst at Amerindo Investment
Advisors. Right now, the bottleneck to Excite@Home's
growth is its ability to meet consumer demand, he
says; introducing a lower price would indicate that
supply is no longer a bottleneck. "And that is very, very
positive," he says. For Excite@Home, getting as many
people on its network as possible is more important
than subscription fees, he says. Weiss' firm holds
shares in Excite@Home.
Building a Base
The effect on Excite@Home's competitors is unclear.
With the new pricing, Excite@Home could win
customers who might otherwise have signed up with
AOL or another Internet service provider, Weiss says.
"You're taking opportunity away from AOL, but you may
not take away AOL customers," he says. "Will people
drop out of AOL to take advantage of this? I don't
know."
Another buy-side analyst, who spoke on condition of
anonymity, says the new brand would be a slight, but
inevitable, negative for Excite@Home and AOL, which
are both trying to build a critical mass of broadband
customers.
"I think all of these guys basically realize that
subscriber revenue is going to be a difficult thing to
depend on," says the analyst, whose firm doesn't own
either stock. For Excite@Home, the move would be
negative if the firm couldn't accelerate broadband
adoption rates, the analyst says. The new service
would pressure AOL to upgrade users from its
$21.95-a-month rate for dial-up service, the analyst
adds. "AOL just has got to migrate narrowband to
broadband just as fast as they can.
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