Pac Bell to hike fees, cap access
By Jim Hu and Courtney Macavinta
Staff Writers, CNET NEWS.COM
June 10, 1998, 5:35 p.m. PT update
Pacific Bell is planning to cap its Internet
access at 150 hours per month and increase its
monthly access fee to $21.95 as of August 1, a
move that some analysts applaud and others call
perilous.
The Internet service provider, which has about
190,000 customers, has been charging $19.95 for
unlimited access.
As of August, Pac Bell subscribers who use the
service more than 150 hours per month will be
charged $1.80 per hour. The 150-hour cap will not
affect subscribers who sign up for a $199.50 yearly
plan--which comes out to about $16.62 per month.
Pac Bell is the latest in a string of ISPs and online
services to alter their pricing and access plans,
putting into question whether unlimited access is
destined for extinction. Major ISPs such as AT&T
WorldNet and MCI Internet in recent months have
introduced limited Internet access plans in hopes of
reducing network congestion.
Although it is a regional company, Pac Bell is an
influential player in the industry because of its size
and location. It is the Baby Bell carrier for
Northern California and, specifically, Silicon Valley,
a status that often makes it a bellwether for Internet
access and related businesses.
Pac Bell said it is raising rates and capping access
to boost its service reliability and to offer new
features such as personal home pages for
subscribers, two extra email boxes and aliases,
56-kbps Internet access capability, and roaming
service.
"We're going to go after the position in the
marketplace where we offer high-quality service
and a high degree of features and functionality,"
said Ed Callan, vice president of consumer
marketing for Pac Bell Internet.
"We're running a best-in-class service, and clearly it
costs money to do that," he added. "We're
spending 67 percent more on our network from last
year. At $19.95 [per month for access], ISPs'
profit margins are razor thin--there is no doubt
about that."
America Online was the first major service to break
the $19.95 barrier in February when it raised its
monthly fee $2 to $21.95. AOL went to flat-rate
pricing in 1996. In March, WebTV raised its
monthly rate $4 to $24.95.
But not all major ISPs are following the trend.
EarthLink, which has 680,000 subscribers, today
reiterated that it will not raise prices or cap its
unlimited access plan.
AOL ran into legal trouble when it automatically
switched customers from $9.95 per month for ten
hours to the monthly flat rate of $19.95 in 1996.
Pac Bell acknowledged the perils of raising prices,
but it is not concerned about consumers taking
action as they did with AOL.
"We know that 100 percent of our customers will
not be happy with this, and some will decide they
want to take their business elsewhere," Callan said.
"Every customer agrees when they sign up with us
that we can raise our rates. We're trying to make it
clear to our customers, however, that we're not just
changing our price--we're offering better service."
The company's terms of service (TOS) state that
rates are subject to change. "The terms, conditions,
and charges for the service may be periodically
modified. After notice of a modification, your
continued use of the service constitutes an
affirmative agreement to be bound by such new
terms, conditions, and charges," the TOS states.
However, some customers will dump the service,
since consumers have a growing number of Net
access services from which to choose.
"I'm going to cancel my service," said Jim Hoopes,
a Pac Bell Internet user. "I have the Road Runner
cable modem service, but there have been enough
reliability problems with it that I kept my Pac Bell
dial-up service as a back-up. However, this rate
change is the incentive I need to cancel my Pac Bell
account."
Despite a rocky history with ISDN (integrated
services digital network) and some notable outages
with its dial-up service, at least one analyst said Pac
Bell is moving in the right direction by raising rates
to improve service and profits.
"It's a 'me too' strategy," said Kate Delhagen, an
analyst at Forrester Research. "It's a move to
adjust to a new standard."
Delhagen applauded the plan, noting that other
ISPs still using the $19.95 unlimited access model
should not be far behind in restructuring their
pricing and access schemes.
"Managing the network will help them control
network costs," she added. "[The $2 increase]
really goes to the bottom line: consumers should
expect to pay $21.95 a month for at least another
year."
Since AOL first increased its pricing plan, many
ISPs have watched from the sidelines to see
whether the online service would suffer from
massive cancellations and defections from the
service. When it became clear that AOL would
withstand any backlash, the prospects of increasing
monthly rates became more appealing, Delhagen
said.
But while many analysts have been strong
supporters of limiting Net usage, others are
beginning to raise warning flags about ISPs using
AOL as a litmus test for raising prices. ISPs with
significantly smaller subscriber bases should worry
more about increasing their user base instead of
replicating the success of the world's largest online
service. Also, many wonder how much service Pac
Bell can offer for the extra $2.
"Raising prices is a bad strategy if they're looking to
grow their subscription base because of
competition in the Internet access space," said Abhi
Chaki, an analyst at Jupiter Communications. "It's
not that they're offering anything special, so there's
no reason to charge $21.95 when AT&T and MCI
are charging $14.95 for bundling services," he
added, referring to the telcos tying together less
expensive Net access with long distance phone
service.
Adam Schoenfeld, also an analyst with Jupiter
Communications, agreed. "While capping hours is
fine and rapidly becoming a standard, it is a
dreadful mistake to raise the monthly price point
beyond the consensus price [$19.95]," he said.
"AOL can get away with it, in the short term. But
even they will eventually yield to downward
pressure on access pricing."
Pac Bell also announced it plans to decrease its
monthly ISDN access rate by 40 percent from
$49.95 to $29.95. The price change also will go
into effect August 1.
The company's ISDN service has been plagued
with complaints. The California Public Utilities
Commission (CPUC) is now considering ordering
the company to lower rates and pay a fine of
$515,000 for falling below ISDN service
performance standards the commission set last
year. |
