Last week, EarthLink instituted a new $49.95-per-month fee for DSL (digital subscriber line) service, up from a previous monthly price of $39.95, executives said.
The company will now waive its $99 setup fee, and the new higher monthly rates--which require a 12-month commitment contract--will only affect new subscribers.
EarthLink executives said the company raised rates to do away with its setup fees and because the cost of renting phone wires from the Baby Bell local phone giants is on the rise.
"There are two key drivers for our change in pricing. We felt that waiving the start-up fees would have good consumer response. Historically, up-front costs have been a barrier to customer adoption," said John Ellis, director of broadband products at EarthLink.
"And the tariffs are going up. The monthly charges that providers like EarthLink are being hit with are going up," Ellis said. "As a result we've got to maintain a certain (profit) margin in order to continue to provide quality of service. As those costs in the industry go up, so too, unfortunately, must our prices."
Tough times have befallen the broadband ISP market, particularly for many smaller DSL providers. Expensive equipment, intense competition, high marketing costs and a weak capital investment market are issues that have affected several providers, forcing some of them to lay off workers, sell assets or be acquired.
The changing market and the high cost of providing DSL service has led some industry watchers to speculate that high-speed rate hikes may be on the horizon.
Already, SBC Communications, the nation's largest DSL provider, raised its rates by $10 per month to $49.95 a month in February.
EarthLink finished 2000 with about 215,000 broadband subscribers, most of whom use DSL, though the company also has some cable modem, fixed wireless and T1 customers.
Existing EarthLink DSL customers will continue to pay $39.95 per month until their contracts expire, according to executives.
The DSL industry's new, higher rates could be a boon for cable operators, which offer a competing high-speed cable modem service that costs about $40 on average.
"It raises questions about DSL's market share vs. cable in 2001," said Michael Harris, president of Kinetic Strategies, a broadband market research firm. "In some markets where consumers buy their own modem, cable only costs $29.95. If it's a choice between that and a $49.95 DSL service, it's a no-brainer."
Stephen Heins, director of marketing at NorthNet, a Wisconsin-based ISP, said, "My guess is that the cable companies are just licking their chops."