Verizon Joins Broadband Price Hike Parade

The price of high-speed Internet access drifted a little higher into the stratosphere this week, with Verizon Communications and AT&T Broadband both hiking prices. Other companies are expected to follow suit.

Verizon is announcing this week it is retroactively dialing up higher prices for its DSL broadband Internet access. The company is hiking its rates for consumer high-speed Internet service to $49.95 monthly from $39.95 for basic service, effective May 1.

Meanwhile, AT&T says its rates for AT&T@Home and Road Runner customers will jump $6 starting June 1. That brings the $39.95 existing price to $45.95 for customers who lease modems from AT&T Broadband. Fees for modem owners will jump from $29.95 to $35.95.

Get used to it, industry watchers suggest. The price increases by two of the industry's largest companies open the door to rate hikes by other companies that sell broadband service, be it satellite, DSL, or cable, says Michael Goodman, senior broadband analyst.

Verizon's pricing scheme affects 720,000 Verizon DSL subscribers. Existing customers whose yearlong contracts have expired will get a 30- to 60-day notice of the price change. Home users will be offered four options for their service and business users will get six choices.

The company says it will continue to provide free DSL modems and Webcams to new DSL customers through June 30. After that, Verizon will charge between $50 and $60 for installations. A yearlong contract for all consumer service is still mandatory.

However, if you have recently signed a one-year contract with Verizon for $39.95 monthly, the company will honor that contract.

What's more--and it's not being advertised--you can still get a $39.95 monthly no-frills service. But it's no deal.

For a one-year commitment, you get one e-mail in-box, 5MB of Web space, and 5MB of e-mail storage--all less than what the other plans offer. You get a free modem, but no PC Webcam. And you pay a $200 start-up fee, so a year's worth of service actually costs $10 to $20 more total than the standard $49.95 monthly plan. Verizon does not guarantee the $39.95 plan will still be available after the year's contract expires.

All of Verizon's consumer packages include four e-mail accounts, 10MB of personal server space, and 10MB of e-mail storage. The options then range from an introductory Enhanced Package ($49.95 monthly), which supports download speeds of 768 kbps and upload speeds of 128 kbps, to Verizon's most expensive Professional Package ($79.95 monthly), which offers download speeds up to 1.5 mbps and upload speeds of 384 kbps.

The company's prices rise everywhere effective May 1 except for California and New Jersey. California DSL rates jump on May 6, and in New Jersey the new rates take effect this fall.

Verizon representatives say the new prices are in response to consumer demand for multiple bandwidth packages. They also say prices and bandwidth options are the company's first attempt at unifying pricing and bandwidth speeds since Verizon was formed through the merger of Bell Atlantic and GTE.

Under Verizon's new pricing plans, monthly fees drop for some services. A service with 1.6-mbps download and 90-kbps upload speeds, currently priced at $89.95, is dropping in price to $59.95 (and upload speeds are boosted to 128 kbps). An asymmetrical service offering 384-kbps upload and download speeds is also reduced in cost from $92.95 to $69.95.

Verizon is only the latest provider to raise DSL prices. Earlier this year, SBC Communications and EarthLink both ended a yearlong promotion by raising monthly DSL rates for consumers to $49.95 from $39.95. However, both also lifted their yearlong contract requirement.

Prices for broadband Net access may even go higher, say experts. DSL providers, especially, have run into technical snags rolling out services and haven't been able to win as many subscribers as they had hoped, says Mathew Davis, Yankee Group senior analyst.

"Now you're seeing rates go up so DSL providers try to turn a profit," Davis says. He expects broadband providers will test the waters to see how high prices can go before consumers stop biting.

Indeed, related costs and expenses from other ventures contribute to broadband rate hikes. Factoring into AT&T Broadband's rate hike is the cash starved Excite@Home, an AT&T subsidiary and wholesaler of AT&T Broadband service. Goodman says Excite@Home has been hurt by an online advertising slump. AT&T is hoping to recoup losses by increasing subscription prices. Because AT&T owns Excite@Home, it can raise rates and improve both AT&T's and Excite@Home's bottom line.

The AT&T Broadband price hike will affect most of its 1.3 million cable modem subscribers. Exempted are former MediaOne cable modem customers who do not subscribe to cable video services from AT&T Broadband; they are already paying $49.95.

"The new prices reflect the value of our service," says Sarah Duisik, an AT&T Broadband spokesperson.

As DSL wholesalers have faltered, the impact has rippled down the DSL food chain to retail customers. The end result, experts say, is a smaller choice of DSL providers as consumers and businesses turn to larger DSL companies perceived as stable.

NorthPoint, with 100,000 customers, became the largest DSL provider to succumb to financial woes when it filed for bankruptcy and told customers their DSL service would be discontinued. But its troubles are far from unique. More than a dozen small DSL providers, including Bazillion, Flashcom, and Zyan, have filed for bankruptcy. Covad Communications and Rhythms NetConnections have both recently discontinued DSL service in some of their markets.

"With the evaporation of credible DSL competition, there is nothing keeping DSL prices down," says Justin Beech, founder of DSLReports.com, a consumer site dedicated to broadband interests.

Verizon replies that it does have competition, namely the cable and satellite access services, more than other DSL companies. That competition will keep prices in check.

Meanwhile, aside from AT&T's announcement, cable broadband prices have remained relatively flat. In some cases they've fallen. New Jersey's Optimum Online bundles premium cable television packages with cable modem services, bringing Internet access fees to $29.95 monthly.

The average price for Time Warner Cable's high-speed cable modem service is $39.95, which includes a modem lease. In some markets, such as Akron, Ohio, the price hasn't changed since 1997, says Mike Luftman, a Time Warner Cable spokesperson. However, as the service was launched more recently in larger markets such as Indianapolis, pricing was introduced at $44.95.

Verizon says customers can get their setup fee waived by ordering Verizon Online DSL packages in combination with select Verizon dial-tone bundles, including call waiting, three-way calling, and voice mail.