New tiered pricing comes to broadband

Looking to win over cost-conscious consumers, cable broadband providers are rolling out tiered pricing plans that offer faster-than-dialup connections for as little as US$25 a month.

But while cheaper broadband sounds great for those who have never had broadband, many longtime cable customers who are used to extremely high speeds complain the move means slower connections at higher prices, and they’re not happy.

Cable broadband providers insist that tiered pricing can be good for everyone. Offering lower-priced packages with slower speeds means more people can afford an always-on connection. Besides, DSL providers have successfully offered tiered pricing for years.

Plus, they argue, cable users who demand the best Internet performance often have the option to pay more and get even faster speeds than are available under one-price-fits-all packages.

Luring Cheapskates

“We want to make that first step to broadband much easier,” says David Pugliese, vice president of sales and new-product marketing at cable provider Cox Communications Inc.

Cox currently offers its standard cable Internet service at US$34.95 a month for 3-megabit-per-second downloads and 256-kilobits-per-second uploads. The company is now testing in several markets a service that offers scaled back performance: $26 a month for 256kbps downloads and 64kbps uploads.

The test service is selling well, Pugliese says, likely in part because it is just $3 more than what America Online Inc. charges for its standard 56kbps dialup service.

Another executive sees the low-priced broadband market as a sure-fire success for service providers.

“There is a segment of people out there that just want always-on reliable service and are not interested in high-speed access,” says Herb Shiery, vice president at Adelphia Communications Corp., which already offers a slower-speed $25 package.

Bandwith Hogs

Altering a service’s download speeds, however, can greatly irritate current cable customers, a fact Comcast Corp. and AT&T Broadband learned earlier this year.

When the companies moved millions of orphaned Excite@Home Inc. customers onto their broadband networks they also cut download speeds from 3.5mbps to 1.5mbps, and a vocal minority cried foul. These outspoken users became further enraged when the companies went on to increase their rates from $40 to $45 a month.

AT&T downplays the impact of its bandwith cut, and says the reduction affected only about one percent of its 1.6 million customers. Plus, that small group of users was actually using about 16 percent of the company’s network bandwith.

“If one person is downloading gigabytes of movies and music, then neighbors on the same network will suffer,” says Sara Eder, company spokesperson. By paring back bandwidth speeds, AT&T Broadband saves money by managing bandwidth more efficiently, she says.

Currently those AT&T customers can’t get back their 3.5mbps download speeds at any price. But the company does plan to roll out tiered pricing as soon as July, Eder says.

Comcast customers seeking their former download speeds can purchase the High Speed-Internet Pro service for speeds of 3.5mbps downloads and 384kbps uploads–for $95 a month. Tiered Pricing for All?

One thing is clear: Broadband providers need to do something to spur adoption. Despite faster connection speeds, people haven’t been signing up for broadband service at the rate many expected.

Today only about 9 percent of households that can subscribe to high-speed Internet service actually do, according to research from the Consumer Electronics Association. The challenge for providers is getting the 68 percent of U.S. homes that have access to broadband connections to sign up for service.

Tiered pricing could play a large role in winning skeptics over. And by next fall one-size-fits-all pricing may become the exception rather than the rule, says Dylan Brooks, senior broadband analyst at Jupiter Media Metrix Inc. Broadband cable provider Rogers Communications Inc. of Canada took the tiered plunge earlier this year, scrapping its flat $40 fee. It now has a $25 High Speed Light service that offers 128kbps downloads and 64kbps uploads. Its $45 High Speed Internet offers downloads at 1.5mbps and uploads at192kbps (the speeds of its former $40 service).

Charter Communications Inc. also has moved its cable service to three price tiers. Its entry level service has three levels of service, starting with a 256kbps downstream speed for about $29.95; its 512kbps to 768kbps downstream service is about $39.95; and its 1mbps to 1.5mbps service is about $75.95.

Time Warner Resists

You may have to wait for tiered pricing if you’re one of 2.2 million Time Warner Cable Inc. customers. Like a handful of other providers, Time Warner Cable says it has no immediate plans to offer consumers a choice in bandwidth speeds and prices, according to spokesperson Mark Harrod.

“We still see a great demand for the packages that we offer,” Harrod says of Time Warner’s $45 monthly fee. One problem with switching to tiered pricing is the chance that some customers will opt for the lower-priced service, says one analyst.

Dropping prices is never easy, says Imran Khan, broadband analyst with the Yankee Group. Providers are terrified of losing money to customers who move to lower-priced plans, Khan says.

“Nobody wants to migrate a $45 a month customer to a $29 bill,” he says.

However, many providers report that when they introduced tiered pricing, new customer signups offset penny-pinchers that moved to slower speeds and prices.

Cox said when it introduced lower speeds and prices to business customers a handful of companies did opt for the least expensive tier. However, Cox says it doubled its customer base through the move.

DSL Strikes Back

Offering higher speeds at higher prices is old hat for many DSL providers–many of which had the technology to do so long before the cable companies. However, as cable companies roll out tiered pricing, some DSL companies are increasing the number of options they offer, too. SpeakEasy DSL, for example, will combat the cable companies by rolling out a new economy package for $39 that offers 200kbps downloads and 64kbps uploads.

Speakeasy already offers four tiers of service catering to everyone from light to power users.

“Broadband isn’t about replacing dialup, it’s about tailoring service to the needs of everyone from casual Web surfers to serious gamers,” says Mike Apgar, Speakeasy chief executive officer and founder.