Thursday, April 25, 2002 | 11:13 a.m.
SUN STAFF AND WIRE REPORTS
Cox Communications Inc. of Las Vegas is finding that once customers get a taste of zipping through Internet pages quickly, they're prime candidates for even more speed.
The dominant local cable television provider is testing the popularity of tiered pricing for speed of access to the Internet in the Las Vegas market.
"Bargain broadband," as it's called, enables Cox to charge competitive rates to access the Internet through their cable connections.
Some America Online users have already defected, abandoning AOL's dial-up service in favor of of high-speed connections. Bargain broadband promises to make things even tougher for AOL.
If you use the Internet, you'll want to follow this development. Bargain broadband will likely appear as part of a bigger shift in the way cable companies sell Internet services. Instead of a one-size-fits-all price, operators are increasingly looking at the potential for tiers.
Here are the numbers: AOL charges $23.90 a month for its dial-up service, which connects customers to the Internet at a top speed of 56 kilobits a second. Cable-modem services have typically charged $45 a month, delivering speeds up to 1.5 megabits a second, which is more than 25 times as fast as a dial-up connection.
But now cable companies are gearing up to compete head-on with AOL's dial-up charges.
In Las Vegas, Cox is offering its 256-kilobit "Interact" service for $26.95 a month. It's not the full-speed cable-modem service, but the 256K offering is about one-sixth the speed of full-fledged cable service.
Yet that's still four times as fast as the maximum speed offered by AOL and other dial-up services -- for a measly $3 more a month. Since dial-up connections rarely connect at the full 56K speed, the bargain broadband will seem even faster in comparison. On top of that, cable modems provide "always-on" connections and don't tie up a phone line.
"We've taken this whole idea of offering varying speeds since we first started offering high-speed data in Southern Nevada," said Steve Schorr, a Cox-Las Vegas vice president. "We first introduced the service in 1997."
But the tiered pricing came later. Early this year, Cox unveiled its 56K product that the company said is free to digital subscribers.
"Tiered pricing enabled us to tailor the product to the customers' needs," Schorr said. "But what we've found is that there's a growing need for speed. The faster you see it, the faster you want to see it. Nobody wants to wait anymore, they want bigger, better, faster. People go to the 56K will eventually go with the 256K and those with the 256K want to move up to the HSI (High Speed Internet) product."
Schorr said of the company's 75,000 Las Vegas customers using Cox to access the Internet, 1,200 have opted for the standard 56K service. He did not have a breakdown of how many customer have gone with Interact or HSI.
There are a few caveats to bargain broadband: To get the $26.95 price you must purchase a cable modem for about $100, or rent one for an extra $10 or so a month. Customers must also subscribe to cable TV service to get the cheap price.
Cable companies see tiered pricing as a way to recruit consumers who haven't yet been tempted by high-speed services. "We want to make that first step to broadband much easier," said David Pugliese, vice president of sales and new-product marketing at Cox.
Tiers could aim even more squarely at dial-up prices, Pugliese says. Other tests have included a 128 kilobit service that could be priced at $24 a month -- more than doubling dial-up speeds for the same price. Other big cable companies -- rivals of Time Warner Cable, owned by AOL's parent company, AOL Time Warner -- acknowledge that they are considering tiered pricing.
That's the good news for consumers. Now for the bad news. If price tiering offers bargains for users on the low end, services with extra bells and whistles may well wind up costing more. Heavy users and early adopters who flocked to broadband could face higher fees in the future.
To understand where all this is going, forget about the Internet and think instead of the airlines. Why does a plane ticket cost hundreds of dollars more if you're not including a Saturday stay-over at your destination? Because that's one way for airlines to separate out business travelers -- who put airfare on their corporate cards -- and charge them more.
Broadband companies want to slice and dice the market just as the airlines do. Telephone companies have done this for a while with DSL service, offering different prices for different speeds (though without dipping low enough to compete with dial-up pricing). There are indications that cable companies will push the envelope a lot further.
Some cable companies have already sought extra fees for virtual private networking connections, or VPNs. These connections, riding on top of a standard Internet connection, give employees at home a secure means of tapping into a corporate network. Comcast, for instance, restricts VPN use to customers paying $95 a month for its "Pro" service.
When a consumer uses a VPN connection, it doesn't actually cost Comcast any extra money. But people who are using VPNs are probably work-at-home types, and are therefore more likely to use their connections a lot. VPN use has also become a way to identify business users -- the Net equivalent of the Saturday night stay-over.
Will users sit still if providers resort to such tactics? "They'll have to, as long as they don't have a choice," says David Willis, a Meta Group analyst who tracks broadband strategies. Many believe competition between cable and phone companies won't be enough. Unless satellite and wireless providers wind up in the mix, consumers could suffer from a cable-phone oligopoly.
The Greenspun family, which owns the Las Vegas Sun, holds a minority stake in Cox's Las Vegas cable system.
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