PacBell to Lower DSL Rates in Calif.

11/22/1998 7:00 PM Eastern

San Francisco-based telephone company Pacific Bell will
expand its coverage areas and lower its rates for its asymmetrical-digital-subscriber-line
service in California, in an effort to attract more customers to the high-speed Internet

The telco, a unit of SBC Communications Inc., declined to
reveal the extent of the price reduction. It expects to announce the price cuts and
details on the expansion of the service next month.

But at least one analyst believes that PacBell would have
to reduce its prices to about $40 per month for its low-end service if it wants to keep up
with competition from cable-modem services.

Prices for PacBell's ADSL service, called
"FasTrak," range from $59 per month for a 384-kilobit-per-second downstream and
128-kbps upstream service, to $189 per month for a 1.5-megabit-per-second downstream and
384-kbps upstream service. There are additional one-time charges for installation ($125)
and equipment ($660).

A PacBell spokesman said consumers can "look forward
to competitive pricing on the spectrum of ADSL offerings. [The price changes] will make
ADSL service very compelling."

SBC chairman Ed Whitacre hinted at the changes last week at
a Warburg Dillon Read Telecom Conference in New York.

PacBell has launched ADSL service in 87 central offices in
more than 200 communities in California -- including Los Angeles, San Francisco and San
Diego -- since May.

But at the prices that it has been charging -- the low-end
ADSL service with Internet access can cost between $89 and $119 per month, depending on
the ISP -- ADSL has been out of reach for most consumers.

Matt Wolfrom, a spokesman for @Home Network in Redwood
City, Calif., said lowering the price of FasTrak could help cable companies to sell even
more high-speed Internet services.

"Any kind of deployment of broadband is good for the
industry and good for the customer," Wolfrom said. "We love to raise the noise
and awareness of broadband."

Wolfrom said @Home is priced at $40 per month in
California, including ISP service and cable-modem rental.

"When you look at the offerings, ours is still going
to be cheaper," Wolfrom said. "The penetration that we have in markets like
Fremont [Calif.] is about 5 percent to 10 percent. There is only room to grow."

Craig Driscoll, an analyst with The Yankee Group, a
Boston-based telecommunications-research company, said PacBell would have to at least
match the prices of cable-modem service to remain competitive.

"Low-end [ADSL] consumer pricing, regardless of speed,
has to be competitive with cable-modem pricing," Driscoll said. "It has to be
within the pain threshold that consumers are willing to pay."

Other telephone companies have been lowering their prices
for ADSL -- most notably Bell Atlantic Corp., which dropped charges for its service from
$59 per month to $49. Cincinnati Bell Inc. has been the most aggressive to date, offering
a 384-kbps ADSL service for $29.95 per month, without an ISP connection. Neither service
includes a monthly ISP charge.

Driscoll added that the number of subscribers to
cable-modem services has been growing nationwide, so if the telephone companies want to
keep up, they are going to have to start aggressively pricing ADSL now.

"Cable-modem-subscriber rates are expected to grow
pretty aggressively," Driscoll said. "But if DSL gets its act together by the
end of 1999, we're probably only talking about 400,000 to 500,000 subscribers for cable
modems. That is not insurmountable. But the window of opportunity is right now. They can't
wait around."

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