Broadband Net rates continue to climb
Local phone providers Verizon Communications and BellSouth join the parade of high-speed Internet providers that are raising rates on consumers.
Verizon already has raised its DSL (digital subscriber line) prices, and BellSouth could announce details of a price hike as early as Thursday. "Some of our rates will be raised, but not all," said BellSouth spokesman David Blumenthal.
Verizon announced four new price plans Thursday ranging between $49.95 and $79.95. The company first lowered its DSL prices in July to $39.95 and still plans to offer that price, but with a higher installation fee, now $200 vs. $50 for the other rates.
The actions follow the lead of other broadband service providers such as SBC Communications and EarthLink, which also have jacked up DSL rates.
Consumers are feeling the pricing pinch on other fronts.
Cable broadband provider AT&T announced Tuesday that it will hike its price next month to $45.95 from about $40.
"Times have changed," said Michael Harris, president of Kinetic Strategies, a broadband market research firm. "Carriers are trading DSL subscriber growth for earnings growth."
Analysts say that companies were content to cut prices a few months ago to scoop up customers, but changed course when Wall Street wanted to see more growth in the bottom line.
Others have a different view. "The price hikes are totally unjustified, especially since the costs of doing business are going down dramatically," said David Burstein, the editor of DSL Prime, an industry newsletter.
Burstein believes the carriers have little evidence to support price hikes especially because SBC said its costs of signing up new subscribers have fallen by more than 25 percent over the past six months along with the price of DSL equipment.
Other analysts concede that the industry might be tightening the screws on customers. "If one were a cynic, one could surmise that the (incumbent carriers) lowered their prices enough to drive out their competition," Harris said.
Adam Guglielmo, a DSL analyst at TeleChoice, a communications consulting company, concedes this view is possible but adds that "the entire industry is still trying to get profit margin positive."
Gary Jacobi, an analyst at investment bank Deutsche Bank, agrees and thinks that DSL and cable providers have discovered some hard truths. "Both industries are finding that it's costing more, taking longer, and proving a little more difficult to do."
Fortunately for customers, industry analysts do not think that prices will keep going up. Guglielmo thinks that prices for basic broadband services will eventually fall, and consumers will only pay more for extra services such as video-on-demand, video conferencing, and gaming.
Kinetic Strategies' Harris notes that companies also pay a price for rate hikes. In the first quarter, SBC added 25 percent fewer subscribers, the same quarter that it raised prices. Meanwhile cable service provider Cox Communications gained 22 percent more customers and did not touch rates.
But for now, most companies seem to want to take the money over the subscriber base, a trade-off that is bad news for consumers.
"It leads me to the conclusion that it's an incredible rip-off," said Burstein, who added that Bell Canada offers broadband service for as low as $26 ($40 CAD).