ISP service shift
Sprint's rate hike for T-3 Net access signals the end of IT bargain shopping. By John Rendleman, PC Week Online
01.05.98 10:00 am ET
In a sign that bargain Internet pricing is over,backbone provider Sprint Corp. has sharply raised its monthly rates for T-3 Internet
access.
With the hefty rate hike for 45M-bps Internet circuits used by large corporations and ISPs (Internet service providers), Sprint has in some instances more than doubled the monthly cost of access. As a result, it's now on a par with the high-end pricing models of its main competitors.
For corporate IT managers, Sprint's pricing action means the few large ISPs that virtually control access to their national Internet backbones are now united in extracting premium rates for high-speed access.
The new Sprint rates clearly reflect that "price trends in the marketplace are going up and not down," said Rick Eisener, vice president of sales and marketing at InterNex Information Services Inc., a provider of reserved-bandwidth, access and monitoring services in Santa Clara, Calif.
"At the moment, demand is outstripping supply, and that means prices
are going up."
While these moves are squeezing smaller ISPs, service providers that
provide value-added services are likely to thrive because many businesses are willing to pay more for them.
Higher prices are likely to become common as carriers with nationwide
Internet backbones, including Sprint, MCI Communications Corp., GTE
Internetworking and UUNet Technologies Inc., respond to pressure to
handle not only the higher-speed requirements of customers, but also the demand for higher-quality service.
Some customers, however, aren't willing to concede that they should
have to pay premium prices for higher-level services.
"Some ISPs are overly impressed with themselves" and consequently
charge too much for their services, said an Internet user who asked not to be named. "There are a lot of companies that need to be on the
Internet backbone, and I think the big ISPs are really taking advantage of that."
Sprint competitors say they have no intention of further raising rates, although some carriers concede their current pricing structures are already high.
"We have for nearly two years been the premium-priced provider," said
John Scarborough, director of internetMCI product marketing at MCI,
in Washington. "I don't know if we are charging too much or [if] other
people are charging too little because of their network shortcomings."
In general, most ISPs are moving toward the higher-quality services that business customers increasingly demand, even if they carry a higher price tag.
"As the market evolves, we will better understand the [underlying costs], and you will see many different service options," said Scarborough. Such options are likely to include tiered pricing based on factors such as service grade, specific applications or even geographical destination, he predicted.
"Our rates are now at an appropriate level where people understand the
price and performance they're getting," said John Moshier, group
manager of business Internet services at Sprint, in Kansas City, Mo.
Providers are also becoming increasingly sophisticated in how they bill customers for services.
"We are getting a much better understanding of how much it costs to
handle the actual traffic," said John Curran, chief technical officer at GTE Internetworking, the ISP division of GTE Corp., in Stamford, Conn. As a result, it's becoming much more feasible to target transit rates specifically to a customer's average traffic volume.
Along those lines, it's also more likely that ISPs will soon be able to identify the costs of providing a certain grade of service to a customer and charge accordingly.
For ISPs in general, "one of the problems we will overwhelmingly face is that a single price for Internet traffic makes the Internet very favorable," compared with conventional voice, data or fax networks, especially internationally, Curran said. Yet IP network operators need to normalize their rates with respect to their actual network costs, he added.
Sprint joins T-3 price hike
Company T-3 Monthly Rates
GTE Internetworking $8,000-$60,000
MCI Communications Corp. $12,000-$76,000
Sprint Corp. $43,000-$46,000
UUNet Technologies Inc. $6,000-$55,000
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