AT&T's Internet Service: Good News and Bad

By: Steve Outing

It's been discussed at length in this column that the U.S. newspaper industry is increasingly staking out a claim in the Internet access business.

Newspapers like the St. Louis Post-Dispatch and Arizona Daily Star (Tucson) have become successful independent Internet service providers (ISPs). A newspaper-owned ISP, InfiNet, owned by Knight-Ridder, Gannett and Landmark Communications, is setting up dozens of U.S. newspapers as regional ISPs, with locally branded access bundled with local content. And it's further been noted here that the access business is a risky one for the newspaper industry, given the coming onslaught of communications industry giants entering the Internet access market.

Earlier this week AT&T formally announced its foray into the access business, offering a service very much targeted at consumers. AT&T customers (there are 80 million residential and 10 million business accounts) can get 5 hours of Internet access for free (yes, I said FREE) each month for 1 year. An unlimited-time account will cost $19.95 per month. Non-AT&T customers would pay $24.95 per month and are not eligible for the free hours. (The service is due to launch in March)

We've known for some time that the telecommunications companies would enter the Internet access business in a big way. Well, it's arrived. AT&T now represents a serious competitive threat to newspapers embarked on the access-bundled-with-content strategy. Let's take a look at the implications of AT&T's announcement:

* It could have been worse. The ISP industry let out a collective sigh of relief that AT&T priced its Worldnet service relatively close to what is already being offered. Some regional ISPs already offer $20 per month pricing, though most put a monthly hour limit on the accounts. InfiNet charges $24.95 per month for 100 hours. It would have been much more disruptive to the industry if AT&T had priced Internet access at below $10 a month, which had been feared.

* AT&T's pricing is very competitive, and as a result of this announcement many ISPs around the U.S. lowered their rates this week, so that their customers would not be tempted to switch providers based just on price. This is great news for consumers. It's not so great for other access providers, as overnight they will see their profit margins go down -- but it is inevitable. If you're an access provider and you haven't lowered your rates to match AT&T's, expect to lose some customers in the coming weeks.

* AT&T has moved the Internet even more toward the mainstream, by making connecting to the Internet very easy. This service will potentially get millions more people online -- many of them novices -- helping the Internet achieve critical mass and "rising all boats." For a publisher who produces content on the World Wide Web, this is great news.

* It's another chink in the hide of the commercial online services. AT&T's offer of 5 free hours a month sure looks good compared to America Online's 5 hours for $9.95 and an hourly charge after that. This is not Netcom, who most consumers have never heard of and who may be intimidated by the perceived complexity of hooking up to the Internet. It's AT&T, a household name that is promising novices an inexpensive way to get on the Internet that will be as simple as logging on to AOL. Worldnet could be a real online service killer and accelerate the already rapid evolution of the online services into Internet providers.

* AT&T's offering includes free software (an enhanced version of Netscape Navigator), no set-up fees, 24-hour technical support and 200 dial-ins around the country. It has raised the bar in terms of consumer expectations of what makes good Internet service. If you as a publisher expect to compete in the access business, you'd better come close to matching the above.

* Internet customers are, for the most part, an unhappy lot. A recent Find/SVP survey found widespread dissatisfaction about the performance of ISPs by their customers, with many poised to abandon ship if a better Internet access deal comes along offering the promise of better service. I've used the same Internet provider for several years, but I've never been happy with its performance; about 5-10% of the time I run into a problem (busy signal, no answer, doesn't recognize my log-in name, connection breaks during the session, etc.). Like many early adopters, I've accepted this spotty service as normal for a company in an industry that is still maturing. If someone can offer me better service, I'm ready to switch providers -- and there are many others like me. The point is that publishers operating as ISPs can't offer 90-95% reliability, or they will lose out to AT&T, et al. Access is a tough business, and it just got tougher.

* In the last couple days since the AT&T announcement, regional Internet providers have been putting on a good face, claiming that local services can effectively compete with a national service like AT&T's. The big guys don't necessarily have a technology advantage in this game, they claim; local services can win out because of their local roots (and this argument holds for local publishers operating as ISPs). I don't believe that for a second. Off the record, you can bet that many of the regional/local providers are very nervous about their future.

* Consider InfiNet, which has set up dozens of U.S. newspapers as access providers in their local communities, and which the Gannett Co. just purchased a one-third stake a few weeks ago. InfiNet is at a disadvantage vis a vis AT&T Worldnet because Infinet currently offers access to local subscribers only in their local POP (point of presence), while AT&T for a better rate gives subscribers local-call dial-ups across the U.S. (InfiNet is currently revamping its infrastructure, the result of which will be the ability for an InfiNet local-newspaper subscriber to dial in from any city where InfiNet operates a POP)

* What InfiNet, with its many newspaper partnerships, and other newspapers operating as ISPs believe will make their brand of Internet access successful -- and competitive with services the likes of AT&T Worldnet -- is local content bundled with access. Knight-Ridder is betting its newspaper Internet strategy on this premise: Most K-R papers are becoming ISPs in partnership with InfiNet and creating Web sites that carry a separate access fee for premium content unless the customer pays them for an Internet access account, in which case access to the content is included in that price. Richard Shockey of Nuntius Corp., a consultant for the St. Louis Post-Dispatch (which operates as an independent ISP), suggested to me in a note recently, "(The phone companies) will have a hard time competing with the brand identity and marketing muscle that newspapers bring to the party."

I don't entirely buy this argument, and I'm more skeptical of Knight-Ridder's strategy now that AT&T has introduced Worldnet. The newspaper access-bundled-with-content strategy is only going to work if newspapers collectively can come up with content that's so compelling that computer users in their local markets will come to the newspaper for Internet access because they don't want to live without access to the content. That's a big, big challenge, because with so much information on the World Wide Web -- much of it free, including many news services -- plain-vanilla Internet access is enough for many consumers. What can publishers bundle with access accounts to make consumers come to them for Internet access rather than AT&T, et al? Compelling local content that they can get nowhere else.

A good portion of the newspaper industry has latched on to the ISP business as a core part of its Internet strategy. These companies may pull it off and effectively compete with the national communications giants by leveraging their local brands and customer base. But the Internet access business just got to be a riskier place to be. If you're a publisher just now considering entering the access business, think twice; the window of opportunity may already be shut.

What do you think?

The above is one analyst's view, and I don't claim to have all the answers. I would be interested in hearing other opinions and will publish them here. Is there still a place in the ISP business for publishers, or has the time passed?

Report from NPPA

Peter Trigg of the New York Times News Service returned from the National Press Photographers Association conference in Denver last week and offered this brief report:

"One of the big things coming out of the conference was the BBS services all getting onto the Web with Web pages for browsing and downloading photos. AP also will be doing this with its photo archive. The other photo archive companies -- T-1 and PhotoView -- were all offering ways in which database queries could be sent from a Web browser to the database and return selected images. Soon you would be able to browse your in-house photos with Netscape and browse the wire offerings from Web pages of PressLink, NewsCom or Wieck Photo Database and possibly AP."

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This column is written by Steve Outing and underwritten by Editor & Publisher magazine. Tips, letters and feedback can be sent to Steve at outings@netcom.com