Netcom to End Flat-Rate Offer for Unlimited Internet Access

Nearly three years after pioneering the market for flat-rate Internet access, Netcom On-line Communication Services announced Wednesday that it would stop offering unlimited access to the global computer network for $19.95 a month.

As many companies have come to embrace flat-rate pricing in recent months, the resulting increase in demand has led to lapses in service. That calls into question the ability of companies to continue offering online access at current rates.

The 580,000 Netcom subscribers who are served by that plan will continue to pay the old price for the foreseeable future, said company spokesman Curt Kundred. But the San Jose-based company will now focus on serving small- and mid-size businesses with premium services at premium prices, which will be announced early next year.

“Because we know our customers want to be more efficient and effective, we are developing enhanced services that target our segment of the market with premium offerings at corresponding price points,” said David Garrison, Netcom’s chairman and chief executive.

Whereas many people use the Internet, particularly the multimedia portion known as the World Wide Web, as a form of entertainment, 75% of Netcom’s customers use the computer network for professional purposes, according to the company. These customers are less willing to tolerate the kinds of service glitches--such as busy signals and slow data flow--that have become increasingly common at many online companies as demand has grown.

For example, since America Online recently switched to a flat-pricing plan of $19.95 a month for unlimited access to its proprietary network and the Internet, customers have flooded the system, causing waits that have on occasion lasted for days. The Dulles, Va.-based company is upgrading its network.

What Netcom proposes to do is add equipment to boost access speed, add access lines and beef up customer support. That will cost money, but the company is betting that a certain segment of the Internet population will be willing to pay for it.

“People can’t get on to their service providers,” Kundred said. “That doesn’t work for somebody who depends upon Internet service for their business.”

Rakesh Sood, a senior analyst with Hambrecht & Quist in San Francisco, said Netcom is not the first facilities-based Internet access company to realize that it has to target a market segment to find profits. Netcom competitor PSINetInc. of Herndon, Va., has already targeted the corporate market with its industrial-strength high-bandwidth network.

“This is something I think Netcom ought to have done sooner,” Sood said. “Clearly the $20-a-month pricing scheme is not sustainable for an extended period of time. Over time, all of these people will be looking at value-added services they can layer on top of Internet access to make it more lucrative. That will be their savior to the extent they can execute those plans successfully.”

That is not to say that customers won’t still be able to buy Internet access at today’s prices. Phone companies like AT&T;, MCI and Pacific Bell have similar flat-rate plans and will probably continue to offer them as loss-leaders to lure customers for their core telephone service, Sood said.

Netcom made the announcement after the close of the market. Its stock ended the day at $14.38, down 38 cents in Nasdaq trading.