AT&T plans broadband rate hike in June

The long-distance and cable giant is expected to inform current broadband Net customers via e-mail in May of the planned rate hike, according to a source familiar with the plans.

The expected rate hikes could affect more than 1 million of the nearly 1.3 million consumers who subscribe to the company's AT&T@Home and Road Runner services in various cities, the source said. Because the hikes have not yet been announced, it is possible that AT&T could change the amount and the timing of the increase, or back off entirely, if it meets with consumer resistance.

Rates hikes from AT&T would make Ma Bell the latest broadband service provider to increase monthly fees for high-speed Internet access in recent months. Several providers of DSL (digital subscriber lines), a competing technology to cable modems, have imposed higher fees. Local phone giant SBC Communications and EarthLink, a major Internet service provider, both raised their DSL fees to about $50 per month.

Some industry observers had speculated in recent weeks that providers of cable modem service would follow. But it is uncertain whether consumers will be willing to pay more for broadband, particularly as the economy slows. However, demand for broadband services has remained strong so far.

When reached Friday, AT&T Broadband Chief Executive Dan Somers declined to comment on plans for an Internet rate hike. AT&T Broadband representatives have recently said the company routinely evaluates its pricing programs, but had no changes to announce.

Representatives for Excite@Home could not immediately be reached for comment. AT&T is the controlling shareholder and largest cable partner of Excite@Home, the leading broadband Internet company, with more than 3.2 million customers. Excite@Home acts as a wholesaler for AT&T Broadband.

Rate hikes by AT&T would not affect Excite@Home customers served by fellow cable partners Comcast or Cox Communications. Similarly, Road Runner customers served by Time Warner Cable also would not be affected.

New pricing scheme
Under the new pricing plan, many customers would begin paying as much as $45.95 in June, the source said. Most AT&T cable modem customers currently pay $39.95 per month, although those who buy their own cable modem--rather than renting one from Ma Bell--typically pay $29.95. Those customers, who represent a smaller portion of the company's market, would pay $35.95 under the new plan.

The rate hike would apparently be the first instituted by AT&T, which announced it would purchase the business along with a vast cable system from Telecommunications Inc. in 1998.

Cable-modem pricing plans vary widely, however, and Ma Bell has offered free AT&T@Home installations and three months of free service as promotions in some markets as recently as the holiday shopping season.

Sources familiar with the plans said AT&T believes higher rates would better reflect the value of the cable modem service. A new pricing scheme would place AT&T's broadband services squarely between slower dial-up Internet access options, which range from about $15 per month to $23 per month, and competing high-speed DSL connections, which now cost about $50 per month.

AT&T has been under pressure to improve its bottom line. Last week the company reported first-quarter earnings of 6 cents a share, a performance that slightly topped expectations but represented an 82 percent decline from a year ago.

Under a restructuring plan announced in October, AT&T will split into four publicly held businesses, trading as either a common stock or tracking stock. Two of those businesses were its strongest revenue-drivers for the most recent quarter: AT&T Wireless and AT&T Broadband, the company's cable unit.

In addition, before it reported earnings in April, Excite@Home warned that its revenue would be lower this year due to a weakening online-advertising market. Excite@Home also said it is facing a cash shortage and has laid off workers to save money and is seeking additional sources of funding.

Excite@Home's cable partners, including AT&T, Cox and Comcast, take about 65 percent of the monthly subscription fees, while Excite@Home receives about 35 percent.

Since cable modem service's introduction in the mid-1990s, fees have hovered around $40 per month, or roughly twice that of dial-up Net access. Although these broadband rates have remained fairly constant, rate hikes are hardly new in the cable TV business.