Consumers have been slow to purchase pricey high-speed Internet access, clinging to their inexpensive yet sluggish dial-up connections. But after years of keeping prices high, an increasing number of high-speed providers are considering new pricing models that would make broadband access cheaper.
Instead of charging a monthly rate for the fastest speed, broadband providers are considering multitiered pricing models that base price on connection speed. The faster connection, of course, will cost more.
The change is largely due to saturation in the dial-up market, which grew less than 1% in 2001, according to Dave Burstein, editor of DSL Prime, a Web site covering the broadband industry.
Indeed, dial-up saturation forces companies seeking growth opportunities to convert existing users into new broadband customers by attracting them with lower price points."If companies want to continue to realize growth, they're going to have to reach the midlevel customer that is waiting for price to improve," says Imran Khan, senior analyst with Yankee Group, a market research firm. In April, a pair of rival Canadian broadband providers, Rogers Communications (RG) and Shaw Communications (SJR - Get Report), began offering multitiered pricing. In July 2001, cable company Cox Communications (COX), launched a low-priced, slower-speed broadband service in Las Vegas called Cox Interact, which charges existing cable subscribers $26.95 a month for download speeds of 256 kilobits per second (kbps), five times faster than dial-up connections. Compare that with Cox's standard, full-speed broadband, which costs existing cable subscribers $34.95 a month for 1.5 megabits per second (mbps), more than 30 times faster than dial-up. If you're not an existing subscriber, each service will cost $10 more. Seven months ago, Cox launched a second multitier trial in New England, to gauge whether lower prices would entice consumers. "We wanted to see if having a lower price product would result in a greater increase in demand. But it's very early to make any firm conclusions," says David Pugliese, vice president of sales and new product management at Cox. Other companies are following suit. A spokesman from Comcast said the company also was considering a multitiered model but had not announced any plans yet. "All of the major companies are looking into this," says Joe Laszlo, an analyst for Jupiter Media Metrix. Multitiered pricing is an old idea that is gaining in popularity. Some broadband providers have been offering a variety of pricing models for years. Two years ago, for example, Charter Communications (CHTR - Get Report), a cable company serving suburban markets in 40 states, began offering three different products, charging as low as $24.95 a month for 256 kbps, $34.95 for 512 kbps and $49.95 for 1.5 mbps. And Qwest (Q - Get Report), which serves 14 states, primarily on the West Coast, has been offering two products since it began providing broadband in 1998. The company charges $39.95 a month for 256 kbps access and $49.95 a month for 640 kbps access. According to the company, 60% of its 484,000 subscribers have signed up for the slower-speed service, while the remainder chose the higher speed. Steve Starliper, Qwest's vice president of consumer product management, says, "Consumers like the ability to say, 'This is the bandwidth I need. I'm not doing heavy surfing, and I enjoy saving the $10."