When IBM.net announced this week an end to its flat-rate pricing strategy, customers balked at a change that will charge an hourly connection fee to the heaviest users.
But in a strange twist that reflects the tangled relationships between telcos, ISPs, and end users, customers of Big Blue's Internet service provider have apparently found a means to get around the extra fee - and, in fact, to pay next to nothing to IBM.net for its high quality connections.
Beginning in April, IBM.net will charge a stiff US$1.95 fee for each hour after the first 100 of connected time, which will be covered by a basic monthly rate of $19.95. The ISP, which services 30,000 businesses worldwide and has 500 local dial-up points in the United States, said the extra charge was necessary in order to keep basic costs low for most users.
"The vast majority of people who use our service fall well within that 100 hours," said IBM.net spokesperson Jan Walbridge, who noted that most IBM.net customers are business users. "In order to keep the price and level of service where it is, we decided to essentially cap it at what seemed to be a reasonable number of hours."
Walbridge said that those who are affected generally are logged on for "significantly more" than 100 hours per month, but she estimated that the change will affect a "very, very small percentage of our users."
That small percentage of users, however, may have found a way to stick with IBM.net, which they claim has superior service. (It was rated PC World Magazine's "Best Buy for Internet Service Providers" in both 1997 and 1998.) As a kind of bandwidth wholesaler, IBM.net sells high-speed data connections, routing, and other services to companies - including other ISPs - who then layer their own services onto IBM.net's technology.
Without naming names, Walbridge acknowledged that, "There are many agreements with different corporations to brand Internet service their own, but in fact it's the IBM connection. We're beneath a number of very large Internet providers."
One such company is BellAtlantic.net, the Net access business of the Baby Bell, which offers dial-up services across the Mid-Atlantic and New England. "You get something that looks and feels like BellAtlantic.net, but you're riding a lot of IBM equipment," acknowledged spokesperson Larry Plumb. "You're riding a lot of their routers, their backbone; and the mail servers are something they do on a brand basis for us."
Thus, for the familiar flat fee of $19.95 per month, IBM.net addicts can switch over to BellAtlantic.net, retain most of the features and speed they love - and forget paying IBM.net any hourly fees.
"I don't know that we can avoid that," admitted Walbridge. "We certainly can't tell anybody what service providers to choose." But she also noted that it may only be a matter of time before other ISPs follow suit. "I think some companies will see how it goes for us," she said. "I'm surprised that other companies haven't done this sooner."
Analysts agree that the move by IBM.net may be the bellwether for possible changes in pricing strategies across the marketplace. "We see the dial-in account ISPs looking for any way they can to get out of that $20/month box," said Barbara Ells, an industry analyst at Zona Research. Ells pointed out that, of the major ISPs who have switched to a flat-rate $19.95/month plan, "we know of only one" - MindSpring - who has seen even a single profitable quarter.
But whatever the future may hold, reaction from other ISPs to the IBM.net announcement was guardedly indifferent, with most saying they won't play follow the leader ... yet.
"Right now we are sustaining the flat-fee plan," said Mike Miller, a spokesman for AT&T WorldNet. WorldNet, which currently serves 1.2 million users in more than 90 cities around the U.S., charges $19.95 for unlimited web access.
BellAtlantic.net likewise has no plans for a change in fee structures, and will not be affected by changes in the way IBM.net bills its direct dial-up customers. However, Plumb said change is virtually inevitable at some point. "Prices change for sure, but it's based less on what IBM.net would do and more on the forces of the market."
San Jose-based Netcom, an ISP with approximately 500,000 subscribers around the United States, Canada, and the United Kingdom, moved to a tiered pricing strategy back in March 1997. It offers standard service with no guarantees for $19.95 per month - and alerts users to the fact they might be kicked off if they stay online for unusually long periods. For $29.95 a month customers can be guaranteed full-time access.
Though Netcom doesn’t see IBM.net’s decision as affecting its own pricing strategies, Mike Kallet, senior vice president of products, technology, and business development at Netcom, said the future undoubtedly will hold greater diversification of service plans across the industry.
"I think you'll start to see several different plans from all the different companies, showing different combinations of flat fees and usage-based fees," said Kallet. "At $19.95, it is not economically possible for companies to have continued flat rates as people's usage keeps climbing."
