New plans may lower broadband costs

The high costs of "broadband" services will keep them out of the current rush toward free Net access. But a variety of ad-supported and package plans are on the way that could help lower the price of high-speed Net services substantially over the next year, companies say.

Several Internet service providers (ISPs) that offer discounted or free dial-up service are in talks to offer discounted broadband services. And the big telephone companies are moving closer to packaging their broadband services with telephone service and other products, providing discounts across the board.

For the most part these experiments are still in the planning stage, and will take time to roll out to the mass market.

"I don't think we'll see really low prices for a long time," said Michele Pelino, an Internet analyst with the Yankee Group. "That's a long way down the road."

Nevertheless, even the thought of falling subscription revenue is driving many high-speed Internet players to develop new advertising and content partnerships, hoping to diversify their source of profits before it's too late.

"Subscriptions will go to nothing," Excite@Home chief executive Tom Jermoluk said recently. "If that's your only source of income you risk being leveraged out."

Looking for deals
1stUp.com, the company that provides AltaVista with its free dial-up Internet service, says it is also looking for a way to provide ad-subsidized broadband service.

"We're in talks with a number of high-speed Internet providers," said Charles Katz, the company's chief executive. "I think it will be some time before it's free. But I think it is a short time before we see tiered pricing in that space."

1stUp.com is planning to have an ad-supported broadband service in the works by the end of the year, Katz said. While company is still hammering out the best pricing arrangement with possible partners, Katz said even the ad-supported version would likely be more than $20 per month.

Other companies are looking at new ways of getting to cheap high-speed connections. LibertyBay.com, a Tacoma, Washington-based ISP that currently offers $8.95 dial-up service, is looking at using inexpensive Internet telephone service to subsidize the cost of a broadband connection.

Consumers are already used to paying relatively high phone bills, says Liberty Bay chief Todd Ostrander. Once Net-based telephone services drop the cost of voice, Liberty Bay and other companies can provide a bundle of voice and broadband services at a low cost--much as Qwest Communications today offered a bundle of long distance and dial-up services for just $24.95.

Many other ISPs are also moving down the path toward offering telephone service. All of these firms face a difficult hurdle in competing with the big local and long distance telephone companies, however.

For the most part, telcos see this bundled future as their territory. AT&T, which has committed more than $100 billion to buying cable companies in the past year, plans to roll out a bundled package of video, high-speed Internet, and local and long distance telephone service by next year.

The company is midway through trials of its cable phone system, but hasn't yet integrated its Excite@Home cable modem service into its package of products. Nor has it released information on the final pricing plan for its communications services package. But analysts say they expect the company to cross-subsidize its services, potentially dropping the price of broadband Net service for AT&T subscribers.

Analysts caution that subscribers expecting genuinely cheap high-speed Net service will have a long time to wait, however.

"My sense is that it will never be free, or at least not until content and deployment become much stronger," Pelino said. "This is something that users should really be willing to pay for."

Drawing customers
Many of the biggest companies now offering high-speed Internet service are already cutting prices to draw people to their services.

Pacific Bell and BellSouth each have waived all or most of the DSL startup fees, which can range upwards of $200 for modem and setup, for some of their customers.

US West has introduced a cut-rate version of DSL that isn't always on, but still provides the fast download times of other high-speed Net offerings. Priced at $37.90 when bundled with ISP service, it is the cheapest broadband offering on the market.

Nevertheless, the economics of broadband still make it difficult to offer service much below the $40 mark, analysts say.

Services deployment is still relatively small, equipment is still expensive, and overhead is high. And the phone and cable companies are still investing hundreds of millions and even billions of dollars in their networks to upgrade them for high-speed Net service.

"Even at that [$40 to $50] level...many of them may not be making money, or may even be losing money," said Jeanette Noyes, an industry analyst with the International Data Corporation.