Tech Industry

Microsoft dials back dial-up prices

Attempting to lure dial-up customers away from AOL, Microsoft's MSN cuts prices on its service for one year.

Dial-up isn't dead yet.

On Tuesday Microsoft's MSN trimmed prices on its dial-up Internet service in what appears to be an attempt to compete more aggressively with America Online.

Microsoft cut prices to $17.95 a month from $21.95 on its dial-up service. Subscribers who sign up before June 30 will get the first month of service for free. The $17.95 price applies only to new subscribers and will last one year. After that, the price will revert to the standard $21.95 price.

Even with those cuts, dial-up service can be had much cheaper. NetZero, for instance, charges $9.95 a month.

AOL, meanwhile, has been raising prices on its dial-up service in the hope that subscribers will switch to broadband. Last month, it increased prices for its dial-up service to $25.90, the same price as its broadband offering.

AOL's price hike demonstrates how important it is for the company to move its user base to broadband. AOL has been losing dial-up subscribers for several years, dropping from 26 million U.S. subscribers in 2002 to 19.5 million last year.

Overall in the U.S., dial-up penetration has fallen from 51.9 percent in 2001 to 34.7 percent in 2005, according to Jupiter Research. Dial-up usage is expected to continue falling, with penetration rates dipping to 19.2 percent by 2010.

Broadband, meanwhile, has been growing rapidly, with penetration rates rising from 10.2 percent in 2001 to 42 percent last year. Bargain-basement pricing on broadband has encouraged many people to switch away from dial-up. Thanks to new services and promotions from AT&T and Verizon Communications, consumers can get broadband for less than $15 per month.

But even as dial-up subscription rates decline, analysts say there is still plenty of money to be made in offering the service, since the cost of maintaining dial-up customers is relatively low.

"The dial-up business is fairly easy money," said Charles Golvin, an analyst with Forrester Research. "It's not a good long growth strategy, but if MSN can acquire customers now and make them loyal to its content, maybe when these customers switch to broadband in a year or so, they'll continue to use MSN content and services."