Skip to main content

Retailers Lure Customers with ISP Promotions

High-speed cable-data providers face a growing threat from
dial-up Internet-service providers that are offering big bucks to entice first-time
subscribers to sign long-term service contracts.

The promotions -- in the form of free PCs, free Internet
access or rebates of several hundred dollars -- could effectively keep many consumers out
of the competitive ISP market for as long as three years.

Last month, four national retailers announced plans to
promote preferred ISPs to their customers:

In mid-December, Circuit City Stores Inc. named
America Online Inc. as its preferred ISP beginning in March. During the holidays, the
consumer-electronics chain also promoted a $400 merchandise rebate to customers who agreed
to take CompuServe Interactive Services Inc.'s service for three years.

Best Buy signed a strategic alliance with Microsoft
Corp. that will make The Microsoft Network (MSN) the retailer's ISP of choice.

Kmart Corp. and Yahoo! Inc. created BlueLight.com,
which offers free Internet access to customers who take ads for an online shopping
service.

And Wal-Mart Stores Inc. partnered with AOL last
month to sell discounted Internet access to customers of the nation's largest retail
chain.

The deals follow a November announcement by RadioShack,
which chose MSN as its preferred ISP.

Cable executives in recent weeks played down the threat to
the growth of their own online businesses.

"Everybody believes it's not the same customer
who will lock themselves into a three-year contract," Excite@Home Corp. vice
president of business development Paul Salzinger said. "Today, our cable operators
see that anybody signing up for three years of Internet access is not going to be our
customer for the next year-and-a-half to two years anyway."

Cable-modem customers -- who typically pay two times or
more per month for high-speed Internet access than they would for dial-up -- are rarely
first-time Internet users.

Some cable executives even credited the aggressive
retail/ISP promotions for introducing new consumers to the Internet and ultimately driving
demand for broadband among future cable-modem customers.

"The more customers who are interested in getting
online and experiencing the Internet, the better," Comcast Corp.'s Comcast Cable
Communications Inc. executive vice president of marketing and customer service Dave Watson
said.

Whether they see retail/ISP partnerships as a boon or a
threat, cable operators don't appear to be backing away from striking their own
relationships with retailers in response.

Comcast, for example, began selling cable-modem service
through four Circuit City stores in Indianapolis last month, signing up more than 400
customers in one weekend alone. "The demand was staggering," Watson said.
"It just shows that retail can be an effective partner with the cable industry."

Circuit City has also worked with MediaOne Group Inc. to
sell cable-modem service, and most recently with Cox Communications Inc. in New Orleans
and Fort Walton, Fla., according to Circuit City spokesman Morgan Stewart.

"We'd like to be able to offer cable modems to
all of our customers in as many markets as possible," Stewart added.

In the Indianapolis trials, the Circuit City stores also
sold DOCSIS-compliant (Data Over Cable Service Interface Specification) RCA cable modems
from Thomson Consumer Electronics.

Tom Watters, director of marketing for Thomson's
digital-broadband management, said he doesn't believe the retailers' deals with
dial-up ISPs will slow down cable-modem rollouts.

"Traditional retailers don't like to sign
exclusive deals," Watters said. "They don't have a lot to gain by
that."

Watters added that he hopes cable operators and their ISPs
will come up with a competitive response to the rebates dial-up ISPs are offering.

Salzinger, however, said he doesn't expect cable
operators to respond with "knee-jerk reactions" to the rebates.

While dial-up ISPs are offering retailers several hundred
dollars to sign up new online subscribers, cable providers won't necessarily respond
in kind, Salzinger predicted.

"We don't feel the need to lock them in for that
period of time," he said, because cable-modem subscribers don't tend to churn
once they experience the high speeds and always-on features of broadband.