Modem owners pay more for AT&T

AT&T Broadband Internet will announce later Tuesday several changes to the way it charges for its cable modems. AT&T marketing executives framed the changes as price reductions based on the decreasing cost of hardware, but the end result will be higher costs for roughly 162,500 AT&T customers who own their own cable modems.

Almost all AT&T broadband customers now pay $35.95 per month for high-speed Internet service. Those who lease modems through AT&T pay an additional $10 per month for a total of $45.95, and those who own their own modems pay no additional fee.

Starting on June 1 in most regions, AT&T will increase the monthly service rate to $42.95. Customers who lease their modem from AT&T will have their lease fee reduced by $7, paying an additional $3 per month for the modem. That will make their monthly bill come to $45.95--the same price they paid last month.

But bills will increase for the 10 percent of AT&T's 1.63 million customers who own their own modems. Their monthly service fee will also go up to $42.95, which means they're going to pay $7 per month more than they paid last month.

Although the price restructuring will appear in customers' next statement, modem owners won't feel the sting for six months. AT&T will include in the next statement six coupons for $7 off monthly service, letting modem owners off the hook for the new rates until January. New subscribers who own their own modems will pay $42.95 per month as soon as they sign up.

Darrel Hegar, vice president of Internet services for Englewood, Colo.-based AT&T Broadband, said the changes reflected price reductions for cable modems. When home broadband access became popular in the late 1990s and in 2000, cable modems cost $300 or more. But in the past two years, the price has dropped to $100 or less, thanks in part to aggressive marketing promotions at computer hardware stores.

Hegar also noted that AT&T's service is still priced lower than alternative broadband service from DSL (digital subscriber line) providers, which typically charge $50 or more per month. Although connection speeds for cable modem users aren't as consistent as those for DSL subscribers, cable modem users generally report faster upstream speeds.

"If you look at the price of our service, it really still reflects one of the best values in the marketplace," Hegar said Tuesday morning. "Cable Internet continues to be the best way to access broadband vs. DSL or satellite. If you look at availability, speed and price, we are still a value leader."

Based on the number of people paying an additional $7 per month, AT&T stands to gain $1.14 million in monthly revenue from the restructuring. But it's unclear why AT&T representatives announced the restructuring as a break for modem leasers as opposed to a simple price hike for 10 percent of customers.

The decision to increase prices for modem owners could be due to the fact that owners have sunk more of their own money into the service and would be less likely to switch to DSL or another broadband alternative, according to Mark Kersey, broadband industry analyst for La Jolla, Calif.-based research group ARS.

"People who own their modems are pretty much locked in to staying with AT&T," Kersey said. "It's a way to extract a little more money out of a small percentage of people. That's a fairly politically smart thing to do because it doesn't affect the vast majority of customers."

The restructuring could also be an effort to make AT&T's broadband unit more attractive to smaller rival Comcast, which in December announced its intention to purchase the AT&T unit for about $37 billion. The combined company, AT&T Comcast, would be the No. 1 U.S. cable TV operator with more than 22 million subscribers. But the structure of the new company recently came under fire, and shareholders are beginning to question whether to approve the deal.

Despite efforts to boost revenue, AT&T cannot raise monthly broadband rates indiscriminately. Although demand for high-speed Internet connections is still growing, the economic slump has slowed growth somewhat and has resulted in a growing number of broadband defectors. And the industry is still reeling from the painful collapse of former front-runner Excite@Home.

The company's demise caused cable partners, particularly AT&T, to scramble to migrate consumers to independent networks, causing customer service nightmares for millions of people. Before its collapse last fall, Excite@Home had 4.1 million customers and controlled about 45 percent of the U.S. home-broadband market.

Customers are already grumbling that the government should regulate broadband service and access rates, which have risen steadily in the past year. An ARS study determined that cable broadband Internet prices rose 12 percent in 2001, from an average of $39.40 per month in January to $44.22 per month in December. Consumer DSL prices rose 10 percent during the same time frame from $47.18 in January to $51.67 in December.