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Microsoft to raise MSN's monthly fee

In an unexpected move, Microsoft says it will raise rates for its MSN Internet Access service by $2 per month.

SEATTLE--In an unexpected move, Microsoft today said it will raise rates for its MSN Internet Access service by $2 per month.

Recent press reports had fueled speculation that Microsoft would dramatically lower MSN rates or provide the service free to chip away at online service market leader America Online's market share.

Jon DeVaan, vice president of Microsoft's consumer and commerce group, did not specify a date for the rate hike. But MSN product manager Deanna Sanford said it would come within the next few weeks.

The move comes on the same day Microsoft detailed plans to jump-start its MSN Internet efforts, introducing a portal aimed at small businesses and beefing up its search function.

MSN subscribers who have already signed up for the $19.95 monthly price will be able to keep that rate for the remainder of their contract, Microsoft said.

Microsoft justified the price increase, which matches the increase AOL implemented early last year, by saying that customers will get their money's worth.

"We think customers are most interested in the speed and reliability of access, and we are committed to continuing to deliver a great service," Sanford said in an interview with CNET News.com.

One of those additional services, called Internet call-waiting, lets users with one phone line know when someone is trying to call them and allows them to accept the call, route it to another phone number, or let it go to voice mail.

"Our goal is to make it easy and affordable for customers to get online, and we will continue to add additional services in the future," Sanford added. "In order to do this, we need to continue running a smart business."

MSN also will begin offering toll-free support, available 24 hours a day and seven days a week. With the new version, users of MSN Internet Access will start seeing MSN.com as their default start page, replacing the current proprietary user interface, the company said.

Analysts questioned the logic of raising prices, particularly when MSN is offering discounts through partnerships, such as its deal with Costco.

"It's interesting to see someone aside from AOL raising the price when so many others are discounting the price or offering it free," said Barry Parr, analyst with IDC. "But price is not really the issue here. The real question is how you differentiate an ISP. Unless they start buying ISPs, I don't see how they're going to expand."

The ISP market today saw a significant move toward consolidation, as Earthlink and Mindspring announced they would merge, vaulting past MSN to the No. 2 spot in terms of users, with about 2.8 million subscribers.