get ready to be charged by the megabyte.

Kelly

Chicago Tribune

Tiered pricing recommended to spark broadband interest
--------------------

By Jon Van Tribune staff reporter

May 20, 2002

Promoters of faster Internet connections say consumers need an education
on why they should pay more for speedier data services.

But since consumers say the primary reason for not getting broadband
Internet service is the $50 a month price tag, there's a problem.

The solution, according to some industry executives, is a tiered approach
that will reduce the speed, quality and cost of broadband
connections--but still faster than dial-up Internet service--to lure
customers.

Once users get a taste for the watered-down broadband, they'll be
inclined to pay more for the real thing, they say.

That was a popular view at a broadband conference held last week by the
Executives' Club of Chicago.

Scott Bender, a vice president at consultant Bain and Co., said only a
small fraction of consumers who could get a DSL or cable modem broadband
service do so.

"There's a lot of potential market, but it's not easily sold," he said.

Of those who do get broadband, Bender noted, many work at home and their
employers often subsidize the broadband connection.

Charging people a rate similar to the cost of dial-up service for an
always-on, slower broadband connection can add new customers, Bender
said.

Representatives from SBC Communications Inc. and AT&T Corp. agreed.

"We will see tiered pricing and service," said Ross Ireland, an SBC
senior executive vice president. SBC has about 1.5 million DSL broadband
customers now and sees demand increasing.

Hossein Eslambolchi, AT&T's chief technology officer, said that prices
for cut-rate broadband could be as low as $16 a month with high-end
services costing twice today's rates.

People who want to make voice calls, play games or stream video over
their broadband connection will migrate to the higher-price,
higher-quality offerings, Eslambolchi said.

The telecom industry also needs to address its DSL pricing schemes
because current trends are gnawing away at profits, said Susan Schramm,
an executive with Siemens Information and Communications Networks Inc.

Internet traffic on telecom networks is increasing while voice traffic is
steady or falling, she said.

But Internet traffic is less predictable and requires more sophisticated
networks than voice.

Another problem: Internet traffic pays carriers far less than voice
traffic.

A new "pay for what you use" pricing strategy is needed, Schramm said.

"Networks would be priced on models more like what airlines use to drive
traffic to non-peak hours," she said.

"People would find it cheaper to download their files late at night
rather than doing it the next day during business hours," Schramm
predicted.

Larry Jacobson, president of Seattle-based RealNetworks, said streaming
video and other content that requires broadband to work properly are
widely available with more on the way. But customers cannot expect to get
this content for free anymore.

"The trend is from free to fee," Jacobson said, "and you're going to see
a lot more of that."

RealNetworks has signed up 600,000 paid subscribers for its streaming
video service, he said, and the numbers are growing every month.


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