AT&T Ups Modem-Owner Fees

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Claiming that cable-modem prices are now so low they no longer warrant a big cost break, AT&T Broadband has cut back on the discount it gives to high-speed Internet subscribers who buy their own cable modems.

A quick survey of other MSOs indicates that this isn't an industry trend. But at least one cable analyst has wondered if the move is less about service value and more about squeezing more money from customers.

The change is part of an overall rejiggering of AT&T Broadband's cable-modem fees, effective July 1. Customers who lease their modems have paid $35.95 for the service and $10 to lease the modem.

That will change to $42.95 for the service and $3 for modem-leasing — effectively maintaining the same overall monthly charge.

But for those who have bought their modems, the fee will jump by $7. Up to now, such subscribers have paid $35.95 per month; that will rise to $42.95. But they won't feel that pinch right away — AT&T Broadband is offering a $7 discount coupon for six months, effectively delaying the price increase until January.

Cable-modem owners are a minority of 10 percent, as about 90 percent of AT&T Broadband's customers lease the gear, according to MSO spokeswoman Sarah Eder.

AT&T Broadband has about 1.6 million high-speed data cable customers, making it the second-biggest U.S. cable ISP, behind Time Warner Cable's 2.2 million, according to Kinetic Strategies Inc.

The changes reflect the dropping cost for cable modems, down from an initial $300 two years ago to $100 or less with discounts, according to Eder.

"We have to price our leased rate around what we think the equipment is worth, so it is a decline in the equipment cost with the leased price coming down," she said. "Now at the same time, we recognize that the value of our service is higher, and we think that this price adequately reflects the value in the market today."

But AT&T's move does not appear to be a trend, as other major cable operators are saying they have no immediate price adjustment plans afoot.

Cox Communications Inc., which discounts the monthly charge $10 to $15 depending on the market for those who own their modems, is not planning any fee restructuring, according to spokeswoman Susan Leepson.

Cox charges $44.95 or $49.95 for service and modem leasing depending on the market and $34.95 for service where a customer owns the modem.

"We are always evaluating our pricing to make sure it is competitive and make sure it is a good value, but we don't have any plans to raise or lower that at this time," Leepson said.

Time Warner Cable, meanwhile, does not lease modems. While it does charge $100 for installation, it does not charge a one-time fee for the modem. There are no price hikes planned for the near future, according to spokesman Mark Harrad.

In Time Warner systems, native Road Runner service is priced at $44.95, while EarthLink service is $41.95 in available markets. America Online service is priced at $44.95, plus an optional $10 for "AOL Anywhere" remote access.

Similarly, AT&T Broadband's proposed merger partner, Comcast Corp., also isn't contemplating a near-term price change, according to spokeswoman Jenni Moyer. The Philadelphia-based MSO charges $44.95 for service and a leased modem and $39.95 for service when the customer owns the modem.

"We think that we offer a good competitive value, and at this point we don't have any plans to adjust our pricing," Moyer said.

ANALYST BAFFLED

The Yankee Group broadband analyst Imran Khan called the AT&T move somewhat baffling, given that most MSOs have been trying to ease out of the cable-modem supply business, thus cutting their equipment-investment costs.

Reducing the consumer incentive to buy their own modems, Khan argued, would likely keep AT&T Broadband in the modem-supply business and potentially make it less attractive for customers to sign on.

"It goes back to there are a number of things that need to be done right if broadband is to take off," Khan added. "Right now, supply is not the issue. Right now, demand is the issue, and there is a big, big disconnect between availability and that option.

"To have AT&T come out and do this — they are prosecuting those that are already helping you improve your bottom line by not carrying those inventories."

Khan also noted that effectively the charge of the service itself is rising with no change in the quality.

"Honestly, if the service hasn't changed, then unless you can convince the end-user or the audience that you are significantly delivering more value to those that own the modem versus those that lease the modem, it is just a mechanism to go up on prices and increase your bottom line," Khan said.

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