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MCI to Challenge Flat Rates

Considering charge per type of transmission.

By Courtney Schlisserman, PCWorld   

Why? Because MCI Communications executives have been looking at breaking from a flat-rate service to accommodate so-called %dquotvalue-added services%dquot such as real-time video conferencing, 3-D graphics and Internet voice calling.

In an interview with an industry newsletter, MCI Communications senior vice president Vint Cerf hinted that MCI might be in the market for a new fee arrangement. %dquotI think that pricing so as to assure the increasing capacity can be paid for is vital,%dquot Cerf said. %dquotWhile I am a strong advocate of flat-rate methods to stimulate market development, I think one has to be realistic about relating price to cost.%dquot

Why the change? Because flat-rate pricing provides no incentive to turn off a network connection, which is proving to be expensive for the carriers and harmful to the system. Increased Internet usage puts the U.S. phone system in danger of gridlock.

MCI already has a %dquottiered rate%dquot system for its DS3 customers -- ISPs, large companies and countries -- who are charged according to what services they use during the month. %dquotSome are actually paying less than they did under a flat rate,%dquot said Alan Clark, an MCI representative.

But so far, prices are not being carried down to the consumers. %dquotIn the short to mid-term, end-consumer prices won%squott change,%dquot Clark said. %dquotTheir usage is not as consuming as large businesses.%dquot

Analysts see a different reason. %dquotYou can%squott depart from the fold,%dquot said John Robb, an analyst with Forrester Research. %dquotThis industry is so competitive that there is only room to differentiate yourself in a good way,%dquot he said. Since America Online%squots jump to the flat-rate system, most if not all ISPs are offering $19.95 amonth for basic service.

%dquotISPs are in a situation where they are not really going to be able to raise prices for consumers,%dquot said Mark Maradian, an analyst for Jupiter Communications. But rising access prices may leave the companies with no choice. %dquotYou can certainly imply that ISPs will eventually have to pass the cost on to consumers,%dquot Maradian said. %dquotBut I would be surprised if MCI would risk losing customers by being the only one to do that.%dquot