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AT&T brings new low to DSL prices

Telephone company cuts introductory pricing on its broadband service to $12.99 per month--with a catch, naturally.

AT&T announced on Thursday that it has cut introductory prices on its high speed Internet service to the lowest level yet: $12.99 per month.

The $12.99 price is for download speeds up to 1.5 megabits per second. The carrier is also offering a higher-speed service for $17.99, which provides download speeds from 1.5mbps to 3mbps. The promotion is only for new subscribers, and the cutthroat pricing lasts only a year. After that, the monthly charge jumps to $29.99 for the lower-speed service and $34.99 for the higher-speed service.

But the new deal comes with a couple of catches. It only applies to customers who order the service online, and it also requires people to subscribe to one of the company's local phone service plans, which start around $10 per month.

AT&T and Verizon Communications have successfully used price cuts over the year to lure customers away from dial-up access onto their broadband services. Last summer, AT&T (then SBC Communications) was the first of the two large phone companies to reduce the price dramatically--to $14.99 for the first year of service. Verizon followed a few months later with a new tier of service offering 768kbps downloads for $14.95 per month.

The price-cutting strategy has worked well for the phone companies, as they have each racked up record levels of new DSL subscribers in the months following the new promotions.

Meanwhile, cable operators have resisted national price cuts on their service. Instead, these companies continue to compete on speed. They also push the value of their service bundles, which include high-speed Internet access, telephony and television.

The phone companies are slowly assembling their own service bundle to compete with the cable operators. Verizon is using its new Fios, a fiber-to-the-home network, to offer its TV service, which is already up and running in several communities in Texas, Florida and Virginia.

AT&T, which is using a combination of fiber and VDSL technology to increase broadband speeds, is testing its TV service in Texas. It plans to roll out the service more widely later in the year.

Cable operators have responded to the phone companies' threats with some limited price cuts or supercharged broadband speeds, especially in areas where Verizon's Fios competes.