Net access pricing shift looms

Early next week, when Netcom (NETC) rolls out its revamped Internet pricing plan, it will become the industry's canary in a coal mine.

Everyone, especially small to midsized ISPs, will be watching.

In December, Netcom surprised the industry by announcing that it couldn't make money charging the standard $19.95 flat-rate fee and would instead remake itself as an ISP targeting small and midsized businesses with higher-tier services that would cost more and add value.

Next week, Netcom will roll out a series of announcements focusing not only on pricing and new products but also on a completely new approach to the ISP business, according to Netcom spokesman Curt Kundred. The announcements will likely focus on bundled services tied to a scale of pricing above $19.95.

Kundred, while sparing on the details, promised the news would be a major shift at the company. "We're going to offer our customers flexibility in the type of services they get. We're going to look at the way we operate our business and take a more rational approach to the whole thing."

"We made history by introducing $19.95, and now we're making history," Kundred said in a phrase that promises to be repeated next week.

Jupiter senior analyst Adam Schoenfeld put it another way. "Netcom, true to its roots, pioneered the $19.95 flat rate and now they pioneered jumping off that ship before it sinks."

It's no secret that most, if not all, ISPs can't make a profit at the $19.95 flat-rate price point. While online giants such as America Online and Microsoft Network are relying on the promise of advertising and commerce to make them profitable, Netcom is moving in the other direction.

It had no other choice, Schoenfeld added. But the big question is whether catering to businesses will work for the company.

"I see Netcom as the bellwether company for any nonmassive ISP," Schoenfeld said. "Their ultimate fate may be the fate of all the thousands of mid-to-small ISPs. Netcom will be a good test case for value-added pricing for the home-office market, the small business market, and even the larger business market."

Kevin Moore, an analyst with Alex. Brown agrees. ISPs generally have no problem getting customers, as the world seems to be clamoring for access, he said. "It seems like consumers will buy anything. From the Wall Street perspective, the question is is it going to make money.

"We're taking a wait-and-see attitude," Moore added.

While some have criticized Netcom for waiting so long--three months on the Internet can seem like an eternity--between announcing its strategic shift and actually introducing it, Moore and Schoenfeld said that the delay shouldn't affect the announcement.

Kundred added emphatically that Netcom promised the announcements would be made by the end of the first quarter--and they will be. "If it were just flipping a switch and charging more, it could have been done in December. It's more about our complete approach to this businesses."