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Verizon boosts Internet access rates

Despite growing competition, many cable and phone providers are increasing consumer rates.

By DAVE GUSSOW

© St. Petersburg Times, published May 4, 2001


After cutting prices last year to attract customers for high-speed Internet access, Verizon Online has reversed course and boosted its rates for residential customers.

The company still offers its $39.95 a month digital subscriber line service, which it rolled out with much fanfare in September, matching the price of most competing cable modem providers such as Road Runner. But Verizon is tacking on a $200 setup charge for new consumers interested in its lowest monthly price.

Instead, Verizon Online, which is operated by the Tampa Bay area's largest local phone provider, will push other, more expensive alternatives for home users. In particular, it is offering a $49.95 monthly plan that has a $60 startup fee and includes a free digital camera as an enticement. Current customers are not affected by the change.

Consumers may have hoped that prices would be driven down by increased competition between cable providers and the phone companies' DSL services, which offer fast connections over conventional copper phone lines.

Instead, they have seen the opposite in recent days nationwide: SBC Communications raised its base DSL service from $40 to $50 a month, and BellSouth went up from $40 to $45. Cable competitor AT&T Broadband increased its fee from $39.95 to $45.95.

Even people who don't want or need high-speed connections may pay more soon: America Online, the largest Internet service provider, is expected to increase its $21.95 monthly fee.

But AOL Time Warner, which operates Road Runner Internet cable service in much of the bay area, has "no current plans" to increase its $39.95 monthly rate, according to spokeswoman Linda Chambers.

High-speed connections such as DSL and cable offer Internet surfers faster downloads and improved quality for video, music and games compared with slower dial-up services using traditional phone connections.

Only 5 percent of U.S. homes have high-speed Internet access, according to the Yankee Group market research firm in Boston, but experts expect the market to boom in coming years. Cable holds the early advantage. Though its speed can be affected by heavy use in a particular neighborhood, cable is generally faster than low-end residential DSL and costs less.

Cable had 3.7-million residential subscribers at the end of 2000, compared with 1.7-million DSL subscribers, a gap that by 2005 is predicted to reach 15.1-million for cable versus 10.5-million for DSL, according to the Yankee Group. Cable enjoys another important advantage: It's available to 50 percent of U.S. homes, compared with DSL's 35 percent.

"We're in the early stages, and it's important not to lose sight of that," said Michael Goodman, a senior analyst with the Yankee Group. "We still have a lot of pent-up demand that we have to go through."

Road Runner has more than 100,000 subscribers in the Tampa Bay area, according to Chambers. Verizon's DSL service has 25,000 business and residential customers in all of Florida.

The big phone companies can take the lead on price increases because many of their smaller competitors, called resellers, have gone out of business. NorthPoint Communications, for example, filed for bankruptcy in January.

Some were victims of the collapse of dot-com mania on Wall Street. But many were driven out of business by high fees and obstacles that the entrenched phone companies put in their way, according to Goodman.

Once DSL prices go up, Goodman says, it clears the way for the cable companies to raise their prices.

The recent moves have started a debate about how high prices can go before consumers get antsy about paying the tab.

"I think the industry is settling on $50 a month unless you buy a lot of other stuff (premium TV channels or whatever), prepay a year in advance or sign your life away on a two-year contract," Justin Beech, founder of the Web site dslreports.com, said in an e-mail interview. "If there is more pricing pressure, they'll cap or reduce speeds instead."

Verizon is offering five levels of service, from $39.95 to $79.95 a month, plus startup fees, with prices increasing as speed does. People will have to ask customer service for the $39.95 option, with its $200 startup fee, which isn't mentioned on its Web site (www.verizon.com/dsl) or in materials explaining the new offerings.

Some of the higher-end services typically aimed at businesses actually will cost less than before.

"If it was simply a price increase, it would not include the enhancements to the package, enhancements that are based on our feedback from customers as one of the largest DSL providers in the country," said Verizon spokesman Bob Elek.

Despite the startup fees Verizon imposes for new customers, most customers use a self-installation kit provided by the company. For those who balk at the idea of doing it themselves, there's yet another fee of $120 for a service call. Road Runner has a $100 installation fee, but that is often waived as part of promotions.

-- Information from Times wires was used in this report. Dave Gussow can be reached at gussow@sptimes.com or (727) 445-4228.

Cost comparison

Here are prices for basic Internet access:

VERIZON: $39.95 DSL service with a $200 setup charge; $49.95 with a free digital camera and $60 setup charge.

ROAD RUNNER: $39.95 cable service with a $100 installation fee.

SBC COMMUNICATIONS: $50 DSL service.

BELLSOUTH: $45 DSL service.

AT&T BROADBAND: $45.95 cable service.

AMERICA ONLINE: $21.95 phone service.

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