December 17, 1996
An 'All You Can Eat' Price Is Clogging Internet Access
By PETER H. LEWISThe most popular number for computer users in 1996 has become $19.95, which is emerging as the standard monthly price for unlimited access to the Internet. But this new "all you can eat" price is rapidly causing indigestion among network-access providers, phone companies and many customers.
Freed from the constraints of hourly rates, millions of computer users are spending millions of hours every day connected to the Internet and on-line information services. That in turn is causing a surge in busy signals, a slowdown in service, and frustration in cyberspace.
The network traffic jams have been increasing in recent months, as more Internet access companies switched to $19.95 price plans. But the real tie-ups began on Dec. 1, when the largest Internet service provider, America Online, with seven million customers, shifted to flat-rate pricing.
Not only did the company's number of daily on-line sessions increase by one-third, to 9 million -- totaling 3.1 million hours of connection time -- but the average America Online subscriber is staying on line 20 percent longer than before.
And because some customers are having so much trouble getting on line, once they do get a connection many deliberately keep the line tied up -- in some cases using special software to hang onto their network connections as they do other work or even sleep. It is as if a diner at a fixed-price buffet had someone hang onto his seat after lunch, so he could still have a place for dinner.
"If you run an all-you-can-eat restaurant, the last thing in the world you want to see is a bus load of fat people pulling into your parking lot," said David Rocker, president of Rocker Partners, a New York investment partnership that tracks the Internet market.
Although America Online's traffic jams are the most extreme because of its large subscribership, the network bottlenecks have been felt by at least some customers of all the big Internet access providers that have moved to a $19.95 monthly price for unlimited network access.
And occasionally, during the evening peak hours when home PC users are most likely to be on line, the busy signals affect not only people with dial-up modems, but can also hinder people trying to make voice calls over the local phone networks through which most Internet connections originate.
As Internet users log on and stay on, the on-line service providers, and the phone companies, are likely to spend millions of dollars to increase network capacity.
A spokeswoman for America Online, which is based in Dulles, Va., said the company was working round the clock, adding phone lines, computers, modems and network connections to cope with the surge. And in Phoenix and some other cities, where the crush of callers has led to an epidemic of busy signals many evenings, the company has sent out "swat teams" to add network lines on an emergency basis.
The on-line companies routinely disconnect users if the network computers do not detect any activity after a few minutes.
But in a consumer backlash made possible by the Internet's two-way communications abilities, hundreds of people each week are downloading automated programs that keep their on-line connections open while they go to lunch, walk the dog or even go to sleep at night.
The rising popularity of these freely available programs, which have names like Keep Alive, Rascal, Stay Connected and Ponger, mean that thousands of dial-in connections are being commandeered and rendered unavailable to others who want to connect.
"I imagine these programs are extremely popular with users and not too popular with phone companies," said Scott Arpajian, executive producer of software services at CNET, a World Wide Web information service whose software libraries distribute such programs.
Jim Diestel, director of advanced services for Pacific Bell in San Francisco, said the average Internet data call earlier this fall lasted one hour, compared with three to four minutes for a voice call, and that was before both America Online and AT&T expanded their flat-rate programs.
For the telephone companies, the longer data calls play havoc with their ability to forecast network loads and manage capacity.
"We'll be able to put in the infrastructure to handle the congestion, but may not be able to recover the investment," Diestel said. "That means your Internet access is being paid for by the basic telephone rate payer."
The trend toward flat-rate pricing has also been especially damaging for the hundreds of small Internet service providers who once had the market to themselves, but who now must compete with flat-rate giants like America Online, the Microsoft Network, and the long-distance phone companies that have entered the Internet business: AT&T, MCI Communications and Sprint.
The big companies are spending to expand their networks now in hopes of eventually being able to recover their costs through advertising revenues and transaction fees.
"No one can stay in business offering dedicated on-line connections for $19.95," said Ken Jackson, president of Illuminati Online, a small Internet provider with 5,800 customers in Austin, Texas, and Houston.
But Jackson said he was being forced to offer unlimited-access flat-rate pricing in 1997 just to compete with the giant companies.
"It makes no sense for us from a business perspective," Jackson said. "We'll have to do what it takes to stay in business. But we may have to change some definitions. An "unlimited" account may have to come with some limitations."
The small providers are not alone in their concern.
"We're thinking long and hard about this unlimited access model," said Curt Kundred, a spokesman for Netcom On-Line Communications Services Inc. of San Jose, Calif., which has more than a half-million subscribers. "The one size fits all model doesn't work either for the customers or the company," he said. "The folks who stay on all the time tax the system more, and we all wind up paying the price one way or another."
Even among consumers, the flat-rate pricing plan is not universally popular. People who do not use the Internet more than a few hours a month probably preferred paying $2.95 an hour.
But for Internet enthusiasts, the all-you-can-eat price plans are prompting residential phone customers to add second and third phone lines. Computers and fax machines have replaced teen-agers as the main reason for adding lines.
Which means that the phone companies are able to at least cash in on the Internet boom through installation charges for the lines, which can often cost $50 or more plus monthly charges.
"Business is booming," said Jeff Ward, vice president of federal policy for Nynex Corp., the regional Bell company for New York and New England.
Ward noted that the number of additional lines was up 14 percent in the last year, while the overall increase in phone lines grew just 2 percent.
"The number of teens has remained relatively constant, so the surge in demand is computer and data driven," he said. "Technology is driving it, and prosperity is driving it."