AT&T;’s Move Onto the Net May Not Be Major Menace
AT&T; Corp.’s aggressive entry into the Internet provider business Tuesday set off shock waves that sent shares of companies in the business plummeting Wednesday. But many industry insiders say Wall Street could be overreacting and that AT&T; may never wield the muscle in the Internet business that it does in the long-distance telephone services.
“There is nothing that says AT&T; will be the dominant player,” says Michael Tardiff, marketing manager for Northwest Nexus, one of thousands of small Internet service providers that dot the country. “When AT&T; deregulated, everybody said they would be the nation’s leading PC company too.”
AT&T;’s low prices have certainly caught the industry unaware. The company announced Tuesday it would offer five hours a month of free access to the Internet for AT&T; customers and unlimited access for just $19.95. The company is also throwing in free software and service in the bargain.
“Free is an awfully hard price point to beat,” Tardiff says.
But service providers argue that the free offer is only good for a year and that for the typical Internet user who spends far more than five hours on the Net each month, AT&T;’s deal is not particularly aggressive. The $19.95 price for unlimited access is the same charged by CompuServe’s Internet offering. Netcom, a major San Jose provider, offers 40 hours of prime-time use for $19.95, plenty for most users.
AT&T; main attraction could be to new users.
“It’s still daunting for people to get on the Net,” says Bill Miller, marketing director for Microsoft Network, Microsoft Corp.’s online service. “AT&T;’s offering could provide a good part of the solution.”
For example, AT&T;’s free offer and its reputation for being easy to deal with could bring in hundreds of thousands of Americans eager to communicate with relatives over e-mail.
“Today half of my family is on the Net,” Tardiff says. “AT&T; raises the possibility I could get the rest on the Net.”
But Tardiff says serious Net users may not be satisfied dealing with customer service representatives from AT&T; who are not up on the latest technology. Small companies such as his, he says, will invariably be quicker to respond than a company that has to retrain thousands of customer representatives every time some new technology develops.
Perhaps AT&T;’s most serious challenge will be to commercial online services such as CompuServe and America Online. For example, recent surveys show that by far the largest number of first-time users enter the Net through America Online. AT&T; could draw away many of those new users, insiders say.
“It was only a matter of time before AT&T; and MCI got into the business and drove prices down,” says Dan Rosenbaum, editor of Netguide, an industry newsletter. “The commercial online services have been due to shrink.”
Forrester Research recently predicted that the commercial online services, which use proprietary software and content to lure customers, will reach a peak in two years and then fall off.
But even these services may not be as hard hit as Wall Street appears to believe.
“AT&T;’s move keeps putting pricing pressure on the online service so that connecting becomes a commodity and the key becomes content and community,” says Microsoft’s Miller.
“The predictions of AOL going out of business in two years is premature,” Miller says.
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End of Mania?
Shares of major Internet-access providers have plummeted from their record high prices, partly on fears of rising competition from giant entities like AT&T; Corp.
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52-week Wed. close Drop from Stock high and change high Netcom On-Line $91.50 $20.38, -2.38 -78% Uunet Technology 98.75 28.63, -3.38 -71% PSINet 29.00 9.38, -1.75 -68% Spyglass 61.00 23.50, -1.25 -61% Netscape Commun. 87.00 51.50, -2.25 -41% H&R; Block* 48.88 35.13, -2.13 -28% America Online 57.00 47.38, -1.75 -17%
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* Owns CompuServe
Source: Reuter
