Leading Internet service provider Netcom (NETC) is making a radical departure from the industry pricing standard today by increasing its monthly access fee instead of decreasing it, effectively abandoning the home market for Net access
Netcom, which three years ago helped establish the $19.95 price now considered the standard, is moving to a higher rate as part of a strategy that caters to small and medium-sized businesses instead of home users.
The company has confirmed that it will raise the price but did not specified by how much or when the new price will take effect. Sources, however, put it at about $30 a month for new subscribers. Existing customers will be able to maintain basic access for $19.95.
The move comes as online services such as industry leader America Online and Microsoft Network are lowering their prices to $19.95 per month for unlimited Net access to stay competitive with ISPs and telecommunications companies that offer basic Internet connections. While the lower charges mean less income for the online services, they say they will make it up in advertising revenue and transaction fees.
Netcom's move to cater to business customers comes as no surprise to those who have been watching this industry transition. When MSN and AOL moved to flat-rate pricing, they eliminated the biggest advantage that no-frills access providers had in fighting off the online giants: competitive pricing.
That left many ISPs scrambling to find niches where they could offer something unique. Some have responded by lowering their prices even more while others are adding what they hope will be killer content.
Netcom is promising to offer better services in exchange for the higher price, services such as faster access speed, quality of service and customer support, and enhanced Web hosting and domain name services, a Netcom spokesman said. The company won't announce exactly what it's going to do, however, until the first quarter of 1997.
In making the move, Netcom is banking on their customers being willing to pay more for additional business services, said David Locke, an analyst at Volpe Welty.
"They're clearly making the bet that the people who are their customers are willing to pay more for that higher level of service," Locke said. "They've spent a lot of time looking at it, and I'm sure they wouldn't do something like this if they didn't in fact believe that this was the characteristic of their customer base."
In fact, that's just what Netcom CEO David Garrison says. "We haven't forgotten our customers in this whirlwind of Internet provider announcement hoopla," he said in a written statement. "Our customers not only want better delivery on the basics, like access and service; they want products that help them to be more productive."
Netcom also announced that it expects to see domestic operating profitability--earnings before interest tax depreciation and amortization--in its fourth quarter ending December 31, at least one quarter earlier than most analysts had anticipated.