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February 28, 1996

Consumers Are Likely Winners
In Looming Internet Access Wars


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  • Tom Evslin, the vice president for WorldNet Services, on AT&T's Internet pricing strategy.

    By ROB FIXMER
    As Internet service providers scurried on Tuesday to gauge the impact of AT&T's full frontal assault on their market with the introduction of WorldNet Services, the only clear winner, at least in the short term, was the embattled on-line customer.

    With AT&T aggressively answering the Internet service plans already announced by its major long-distance rivals, MCI and Sprint, the competition for the business of 8 million or so Americans already on line -- and of many millions more who have yet to buy a modem -- became suddenly much more fierce. Within hours, independent access providers were either announcing price cuts or considering ways to enhance their services.

    To that faceless consumer sitting at a home computer -- paying anywhere from $30 to hundreds of dollars a month for the frustrations of busy signals, slow access speeds, being routinely and abruptly dumped off-line and losing e-mail service for hours or even days at a time -- a sense of rescue might have seemed imminent.

    If any industry could make AT&T look like a white knight to consumers, it would be the Internet service providers, or ISPs, that group of electronic pioneers ranging from large on-line services like America Online (the port of entry for an estimated 30 percent of all Internet users in the United States), Compuserve and Prodigy to mom-and-pop shops with low-end servers in their dens and garages.

    A survey released on Monday by the research firm Find/SVP indicated that almost half of all Internet users were so disillusioned -- if not downright angry -- with their current providers that they planned to switch to another service this year. What's more, the percentage of disgruntled customers is even worse than that number at first suggests, since about 55 percent of those surveyed are connected through their workplace LANs or academic servers and presumably would have no choice of providers.

    Why are these people so angry?

    The answers ranged from slow access (nearly a fourth of all users) and hourly access charges (a fifth) down to the eight percent who wanted the ability to log on from wherever they happened to be dialing in.

    The survey, sponsored by 30 companies involved in the Internet, including computer and networking companies, access providers, telephone and cable companies, was conducted in November and December with a sample of 1,000 randomly dialed Internet users. Find/SVP did not estimate the study's margin of sampling error, but anecdotally, it seemed pretty much on target.

    Tom Evslin, the vice president for WorldNet Services, said that AT&T was not aware of Find/SVP's survey when it was planning its service, but added: "We heard the same kinds of things from our long-distance customers, and in that sense dissatisfaction with ISPs has been a driving force. Our customers were saying, 'We look at you as our communications provider, so fix that.' "

    Whatever AT&T's motivation, its WorldNet Services plan, at least on paper, would seem to answer many of the concerns revealed by the study.

    WorldNet will go on line with more than 200 points of presence, or POPs, meaning that from the outset about 80 percent of all AT&T long-distance customers will have local dial-up access to the Internet at 28.8 kbps, the highest modem speed possible on standard telephone lines. Evslin said that the service would install, on average, about one modem for every 20 users, with higher ratios in smaller communities, lower ratios in large urban areas and a POP-to-POP switching system that should virtually eliminate busy signals during most hours of most days.

    As for customer service, Evslin said, "Current ISPs have not distinguished themselves in terms of customer care," and he added that AT&T hoped to attract new Internet customers who had put off going on line because of "all the bad things they've heard" about access providers.

    All that optimism, of course, rests on the sustained viability of a network over which AT&T no longer has any control - the local telephone service provided by the Baby Bells and community telephone companies. Current capacity of those systems assumes that at least 90 percent1O@ ones콭*jC_kk__֭ŀÃA*F}VBK`{vCU[?>11;mptid^flRi|ƅ7B h4]&R6Wain!_`ϩVɎZup their cable partnership, several industry executives noted Tuesday that the companies might then face trouble on the antitrust front.

    With the addition of Continental to US West's cable holdings, Time Warner would have direct and indirect control of more than 16 million subscribers. The Federal Trade Commission is already concerned about the Time Warner-Turner deal, because the cable giant Tele-Communications is a major shareholder in Turner.

    Gene Kimmelman, co-director of Consumers Union, a consumer lobbying group in Washington, said Tuesday that these interlocking ownership stakes could impede competition and that the FTC should take a look at the US West-Continental merger, too.

    "This deal ought to be reviewed in conjunction with Time Warner's deal for Turner," Kimmelman said.


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    rantees Continental's shareholders $30 a share in cash and stock.

    In addition to Continental's cable subscribers, U S West would receive its stakes in Turner Broadcasting System; Prime Star Partners, a direct-broadcast satur customers used to subscribe to the big on-line services. That may happen here, too."

    Halfway across the nation, in Fort Atkinson, Wis., Ron Fowler, a partner in IDC, a local access provider with about 700 customers in six mostly rural parts of Wisconsin and Kansas, was slightly more sanguine.

    "All in all, I'd say I'm concerned and watching AT&T carefully, but not overly alarmed," Fowler said.

    One reason for guarded optimism, he said, was his "doubts about AT&T's traffic-carrying capacity, especially in rural markets." Alluding to the Baby Bell that provides local phone services to the areas in which IDC operates, he added, "Frankly, I'm a lot more concerned about Ameritech getting into this business."

    To compete with rural access providers like IDC, Fowler said, "AT&T will need to offer either free 800 service or a local point-of-presence. The former taxes the telephone network in whatever cities AT&T sets up shop; the latter puts them on a par with us as just another local Internet provider, and we're quite prepared to compete head-to-head with other local providers."

    Even so, Fowler was taking no chances. IDC immediately announced that it was matching AT&T's pricing structure for its own long-distance customers -- $19.95 a month for unlimited access -- "so there's no cost incentive for our customers to switch."

    AT&T's Evslin didn't argue with that logic.

    "These guys are in this business because they're able to answer people's needs," Evslin said of local ISPs. "A lot of them may survive or even thrive by filling a local or vertical niche."

    Even Panix's Rosen, who as an urban access provider was facing grueling head-on competition with the world's largest long-distance company, managed to find a bright spot in his circumstances.

    "AT&T may have more pull with the politicians in Albany and Washington," Rosen said, "and that may help everyone offering on-line services."


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  • Summary of The American Internet User Survey by Find/VSP.
  • News release announcing AT&T's WorldNet Services and explaining its pricing policies.



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