the future of internet access pricing:
E-WORLD
By THOMAS E. WEBER
More Trouble at AOL: Cable Rivals
May Push Net Prices Even Lower
Some America Online users have already defected, abandoning AOL's
dial-up service in favor of zippy high-speed connections. But if things
are tough for AOL now, wait until it sees the next salvo from big cable
companies: bargain broadband.
If you use the Internet, you'll want to follow this development. Bargain
broadband will likely appear as part of a bigger shift in the way cable
companies sell Internet services. Instead of a one-size-fits-all price,
operators are increasingly looking at the potential for "tiers" -- different
charges for different levels of service.
Here are the numbers: AOL charges $23.90 a month for its dial-up
service, which connects customers to the Internet at a top speed of 56
kilobits a second. Cable-modem services have typically charged $45 a
month, delivering speeds up to 1.5 megabits a second, which is more
than 25 times as fast as a dial-up connection.
But now cable companies
are gearing up to compete
head-on with AOL's
dial-up charges. Already,
Cox Communications is testing a price of $26.95 a month with
customers in Las Vegas. You won't get the full speed of cable-modem
service at that price. The bargain rate delivers 256 kilobits per second,
roughly one-sixth the speed of a full-fledged cable service.
Yet that's still four times as fast as the maximum speed offered by
AOL and other dial-up services -- for a measly $3 more a month.
Since dial-up connections rarely connect at the full 56-kilobit speed, the
bargain broadband will seem even faster in comparison. On top of that,
cable modems provide "always-on" connections and don't tie up a
phone line.
There are a few caveats: To get the $26.95 price you must purchase a
cable modem for about $100, or rent one for an extra $10 or so a
month. Customers must also subscribe to cable TV service to get the
cheap price.
Cable companies see tiered pricing as a way to recruit consumers who
haven't yet been tempted by high-speed services. "We want to make
that first step to broadband much easier," says David Pugliese, vice
president of sales and new-product marketing at Cox.
Tiers could aim even more squarely at dial-up prices, Mr. Pugliese says. Other tests have included a 128
kilobit service that could be priced at $24 a month -- more than doubling dial-up speeds for the same
price. Other big cable companies -- rivals of Time Warner Cable, owned by AOL's parent company,
AOL Time Warner -- acknowledge that they are considering tiered pricing.
That's the good news for consumers. Now for the bad news. If price tiering offers bargains for users on
the low end, services with extra bells and whistles may well wind up costing more. Heavy users and
early adopters who flocked to broadband could face higher fees in the future.
To understand where all this is going, forget about the Internet and think instead of the airlines. Why does
a plane ticket cost hundreds of dollars more if you're not including a Saturday stay-over at your
destination? Because that's one way for airlines to separate out business travelers -- who put airfare on
their corporate cards -- and charge them more.
Broadband companies want to slice and dice the market just as the airlines do. Telephone companies
have done this for a while with DSL service, offering different prices for different speeds (though
without dipping low enough to compete with dial-up pricing). There are indications that cable companies
will push the envelope a lot further.
Some cable companies have already sought extra fees for virtual private networking connections, or
VPNs. These connections, riding on top of a standard Internet connection, give employees at home a
secure means of tapping into a corporate network. Comcast, for instance, restricts VPN use to
customers paying $95 a month for its "Pro" service.
When a consumer uses a VPN connection, it doesn't actually cost Comcast any extra money. But people
who are using VPNs are probably work-at-home types, and are therefore more likely to use their
connections a lot. VPN use has also become a way to identify business users -- the Net equivalent of the
Saturday night stay-over.
Will users sit still if providers resort to such tactics? "They'll have to, as long as they don't have a choice,"
says David Willis, a Meta Group analyst who tracks broadband strategies. Many believe competition
between cable and phone companies won't be enough. Unless satellite and wireless providers wind up in
the mix, consumers could suffer from a cable-phone oligopoly. |
