Will What Goes Up Come Back Down?
By Evan Blackwell
from the May 21, 2001 issue of Broadband Week
With demand continuing to soar and the competitive landscape eroding, the prices for broadband service slowly are inching upward. One by one, the larger service providers each have revealed new product options and pricing plans over the last few months.
It was only about a year ago that, at least among DSL providers, the pricing trend was downward as telcos and competitive providers sought to grab market share. Bell Atlantic (pre-Verizon Communications) touted a 20 percent drop in its basic consumer DSL package, to $39.95 a month while US West (pre-Qwest Communications) launched a $19.95 a month bare-bones DSL plan.
Fast forward to this year, when competitive providers have dropped like flies and the incumbent local service carriers have solidified their hold on the DSL market. The increasing price trend began in February when SBC Communications boosted the price of its basic DSL service by $10, up to $49.95. The domino effect trickled through several carriers, with the latest changes being made earlier this month by Verizon and BellSouth.
"The ILECs have seen an opportunity, and they're in the process of recouping the investments on their networks," says Matt Davis, analyst with The Yankee Group. "Going forward, it's not unreasonable to think the prices will eventually come back down."
Analysts at the recent DSLCon convention also said as much, noting that providers likely would have to raise subscription rates simply to make money at DSL, while they eventually would trim pricing to compete with cable and satellite technologies.
But that won't be anytime soon, judging by the latest activity. Verizon Online raised the price of its basic service plan by $10, to $49.95 a month. As incentives the company says the package will include four e-mail boxes, 10 megabytes of Web storage, a free DSL modem and a free Logitech PC camera in exchange for a one-year commitment from the customer.
"People want more from broadband," says Verizon spokesperson Catherine Lewis. "We found they wanted increased capability at the basic service level, and that's what we're offering."
Verizon will continue with a more rudimentary $39.95 offer, but it won't include the PC camera, extra e-mail boxes or increased Web storage, and it will charge a nonrefundable $200 setup fee for new customers. Existing customers at that price plan won't face a change. Verizon also is offering new service packages with higher data speeds at $59.95 and $69.95 a month.
BellSouth, which currently claims just over 300,000 DSL customers, will be cutting back on the discount it offers to customers who opt for DSL and voice service under its Bell South Solutions or Complete Choice package. Before, these customers had a $10 discount on the standard $49.95 DSL price, and now that break is being whittled down to $5 beginning on June 1.
Bill Story, vice president of broadband marketing for BellSouth, says the increase is necessary to pay for a major network upgrade project last summer. "Basically we feel like if you are making the kinds of investments, you have to have the financials to justify that," Story said. "We feel like that is what our customers want ... they want more robust service, a more reliable service. We now better understand our cost structures, and I think everybody in the industry is beginning to realize that some of these breaks that we were at ... that you can't afford to make these kind of improvements your customers are asking for."
BellSouth also is changing the price it charges to competitive DSL resellers, moving to a flat $33 a line. Before, the Bell offered a range of prices from $29 for providers that committed to a high number of lines to $37. Perhaps not coincidentally, the carrier recently lost a Kentucky regulatory proceeding forcing it to cut its wholesale prices.
"That will simplify things for us and our ISP partners. For some it will be a price increase; for some it will be a decrease," Story says. "It'll enable a lot of the smaller ISPs that want to serve more rural communities that maybe the AOLs and the MSN aren't."
Qwest, which boasts more than 300,000 DSL customers in the Rocky Mountain region, to date hasn't announced any price increases for its broadband services. Qwest's basic DSL Deluxe package runs $29.95 a month right now, but several reports have indicated Qwest could bring that price up soon. The company also offers a $19.95 service that requires the user to log on rather than being constantly connected.
Qwest also has faster DSL packages designed for telecommuters, ranging from $50-$60 a month. Covad Communications, which continues to be the largest competitive DLEC standing at more than 300,000 DSL lines in service, sells ADSL through its ISP partners at prices that range between $49-$69 a month.
The price shift hasn't been exclusive to the DSL guys, since some of the cable operators have followed suit. AT&T Broadband, the largest U.S. provider of high-speed access with around 1.28 million customers, said it plans on increasing its fees by $6 a month starting June 1. Most of AT&T's @Home and Road Runner cable modem customers will now be paying $45.95 a month. Those who own their own cable modem will pay $35.95.
Senior editor Karen Brown contributed to this story.
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