AT&T Fleeing Low Pricing Swamp

AT&T announced that it will raise the price of several of their DSL tiers by $5. The company's Basic (768kbps) tier is increasing from $14.95 to $19.95, their Express (1.5Mbps) tier is increasing from $19.99 to $25, and their Pro (3Mbps) service is increasing from $24.99 to $30. Indeed, Parks Associates predicted this to happen in a new report that we just published called U.S. Broadband Market Update 2007.

AT&T has to increase prices because they are losing the ARPU (average revenue per user) war, which has been hurting their bottom line. According to Parks Associates’ consumer analysis, in 2007, cable MSOs continued to lead DSL providers in ARPU. Their ARPU stood at $41, compared to $32 for telcos’ DSL services. Among all the telcos, AT&T had the lowest ARPU of $27. The difference between AT&T and Time Warner, the leader among cable MSOs, was an astounding $18.

Actually, this is not the first time AT&T lifted its prices in the past 12 months. Earlier, AT&T has increased the introductory price of its 1.5Mbps Express tier from $12.99 to $19.99 per month and 3Mbps Pro tier from $17.99 to $24.99. Meanwhile, AT&T’s Elite tier’s price went down from $49.99 to $34.99, in a bid to encourage upgrade. The tactic worked. In Q3 2007, 46% of AT&T’s DSL users were subscribing to speed tiers of 3Mbps or faster. Thus, these companies are hoping this strategy will narrow the gap between themselves and the cable MSOs.

The continuous price hikes indicate that low pricing is increasingly becoming an inferior competitive strategy in the fast-changing broadband landscape. Faster speeds, bundled services, differentiating value-added services and converged services that stimulate bundles will certainly gain in importance and popularity in 2008 and the years to come.