Leading Internet service provider Netcom (NETC) is making a radical departure
from the industry pricing standard today by increasing its monthly access fee
instead of decreasing it, effectively abandoning the home market for Net access

Netcom, which three years ago helped establish the $19.95 price now considered
the standard, is moving to a higher rate as part of a strategy that caters to
small and medium-sized businesses instead of home users.

The company has confirmed that it will raise the price but did not specified by
how much or when the new price will take effect. Sources, however, put it at
about $30 a month for new subscribers. Existing customers will be able to
maintain basic access for $19.95.

The move comes as online services such as industry leader America Online and
Microsoft Network are lowering their prices to $19.95 per month for unlimited
Net access to stay competitive with ISPs and telecommunications companies that
offer basic Internet connections. While the lower charges mean less income for
the online services, they say they will make it up in advertising revenue and
transaction fees.

Netcom’s move to cater to business customers comes as no surprise to those who
have been watching this industry transition. When MSN and AOL moved to
flat-rate pricing, they eliminated the biggest advantage that no-frills access
providers had in fighting off the online giants: competitive pricing.

That left many ISPs scrambling to find niches where they could offer something
unique. Some have responded by lowering their prices even more while others are
adding what they hope will be killer content.

Netcom is promising to offer better services in exchange for the higher price,
services such as faster access speed, quality of service and customer support,
and enhanced Web hosting and domain name services, a Netcom spokesman said. The
company won’t announce exactly what it’s going to do, however, until the first
quarter of 1997.

In making the move, Netcom is banking on their customers being willing to pay
more for additional business services, said David Locke, an analyst at Volpe
Welty.

“They’re clearly making the bet that the people who are their customers are
willing to pay more for that higher level of service,” Locke said. “They’ve
spent a lot of time looking at it, and I’m sure they wouldn’t do something like
this if they didn’t in fact believe that this was the characteristic of their
customer base.”

In fact, that’s just what Netcom CEO David Garrison says. “We haven’t forgotten
our customers in this whirlwind of Internet provider announcement hoopla,” he
said in a written statement. “Our customers not only want better delivery on
the basics, like access and service; they want products that help them to be
more productive.”

Netcom also announced that it expects to see domestic operating
profitability–earnings before interest tax depreciation and amortization–in
its fourth quarter ending December 31, at least one quarter earlier than most
analysts had anticipated.