The price of Net competition

By Richard Morochove

First published August 20, 1998

In the wild wooly world of the Internet business it sometimes seems that logic and common sense are part of an alternate universe.

Take the competition to provide you with a link to the Net, which is developing into a four-way fight.

In one corner are the independent Internet Service Providers (ISPs) that specialize in delivering a link to the Net. In another corner are the big telephone companies. Many came late to the Net party, joining the fray only after pioneering ISPs proved the demand for this service.

Then there are cable TV providers who already have a big broadband pipe into most Canadian homes and would dearly love to fill it up and fill their coffers by delivering Internet access along with Seinfeld re-runs. In another corner all by itself is America Online, which recently purchased rival CompuServe to bulk up its user base.

In this four-way tussle for your Net business the gloves are off. Last week six Canadian ISPs, representing a group of sixty providers, filed a complaint with the Competition Bureau regarding telephone company Internet marketing practices.

Internet Direct, Netcom Canada, CAM Internet and the others are requesting an inquiry into the way Bell Sygma prices its high-speed Internet access service known as ADSL.

The ISPs charge that Bell is attempting to drive them out of business by pricing ADSL nearly $130 below its cost. Bell is currently testing ADSL in Ottawa and plans to roll it out to other major centres.

The ISPs are concerned because ADSL offers much faster Net connections, roughly 30 times the speed of current dial-up modems. They believe that many heavy users of the Net will switch to ADSL in order to eliminate the bottleneck of the World Wide Wait.

The ISPs claim they currently supply personal access to over 60 per cent of Canadians who hook up to the Net. Unless the ISPs can offer similar low prices for ADSL connections, subscribers will switch to the phone company en masse. That 60 per cent market share will melt down faster than an ice cream cone in the August sun.

The ISPs say Bell may be using its profitable telephone services to prop up an unprofitable affiliate in the Internet business. Yet should the price of a service be determined by arcane rules regarding the assets used to deliver it or should it be based on the market price of the competition?

Bell finds itself competing with Internet cable services, marketed under the Wave banner, which offers speed enhancements similar to ADSL. So Bell has to keep the price of the Wave in mind when setting rates for ADSL Internet services.

The ISPs also complain about the marketing practices of Bell and its affiliates in the Stentor Group for its standard dial-up Internet service. For example, Bell's long distance subscribers can sign-up to receive free Internet access for one year or receive free personal Web hosting along with Internet access for six months.

I signed up using a form on the Web and a few days later received a package in the mail. The package contained software for Web browsing and e-mail but no written instructions on how to obtain the free account.

Apparently I'm supposed to install the Web software in order to find out how to get that free account. Yet since I requested the service online it should be obvious that I already have capable software.

Do I want a few tens of megabytes of applications I won't use clogging my hard drive? Do I want to risk my having my existing configuration modified by Bell's software?

Bell has offered to pay the toll on the information highway, but to get directions to their onramp, you need to drive their car. It doesn't matter if you already have your own perfectly capable auto if you have a one-car garage that makes it awkward to park another vehicle.

If this is an example of Bell's marketing power, the ISPs have nothing to fear from such a feeble-minded giant.

Furthermore, if the ISPs truly believe the price charged for a service should reflect its cost, they should examine their own rate cards. Along with dial-up service, most ISPs offer free Web hosting, provided the site is not used for commercial purposes.

If you want a commercial site, you'll find yourself quoted a price of $75 a month or more for even a small virtual host. Are the ISP's costs for delivering the service really that much more?

If so, then how can many web presence providers that specialize in hosting offer a commercial site for $15 a month?

Could the ISPs be charging high rates for commercial Web hosting to prop up an unprofitable dial-up business? Surely they wouldn't follow the same practices they now criticize. CW