AT&T enters the Internet skirmish: increased competition could mean an all-out Internet service price war.

If you haven't noticed by now, there's a war going on. AT&T's entrance into the Internet service provider (ISP) business was the first volley in a battle for supremacy in this largely uncharted territory.

AT&T launched its WorldNet service in February with an aggressive pricing structure; it includes five free hours of Internet access per month for one year and unlimited access for $19.95 per month.

Aimed at those consumers who were not yet on the Internet, AT&T clearly hit its mark--with nearly 300,000 requests for its WorldNet software in less than a month of the initial offer.

What does AT&T's entrance into this market mean? "It's a very serious threat to almost everyone in the [ISP] business," confirms Adam Schoenfeld, vice president and senior analyst for Jupiter Communications, an industry research and consulting firm. But AT&T's presence is not all bad news for existing Internet providers. "They [AT&T] bring a lot of credibility and awareness to the ISP business," explains Michael Darcy, a Prodigy spokesperson.

With MCI, AT&T and the Baby Bells--not to mention the cable companies--entering the field, the stakes are higher than ever. Meanwhile, government regulation of the service provider industry will end AT&T's free ride: it will iron out the wrinkles in existing laws that had permitted AT&T's WorldNet service to tap without charge into the local Bells' line connections, providing for the free transmission of data.

These developments will raise the amount of capital needed to stay afloat in the business. As competition grows more fierce, ISPs will offer more services for less money. Many small and regional ISPs will not be able to pay the price to be competitive in this market. They will be forced to reorganize or assimilate, and many companies may have to liquidate.

For consumers, it means access prices will likely come down for the foreseeable future--or at least until a standard, industry-wide pricing structure is adopted. In the months following the WorldNet launch, large and small ISPs alike have adjusted their rates to stay competitive.

Weeks after the launch, MCI offered a similar flat access rate of $19.95, with many other ISPs following suit. Not all ISPs are lowering prices, though. USBOL, a black-owned nationwide ISP with a focus on African American issues and themes, has not lowered its access rates. "We are more than just an ISP," explains Kendall L. White, USBOL's director of information technology and architecture. "We feel that the value-added services which we offer are worth the cost." He does admit, however, that as prices continue to drop, "at some point, we may have to rework our pricing sctructure."

Pipeline has been offering unlimited access for $19.95 a month since July of last year. In fact, the WorldNet service is courting the same consumer market--new users--that Pipeline has focused on. As Prodigy spokesperson Aggie Nteta explains: "Our focus now begins to shift to content- and value-added services in order to provide our customers with the easiest, most useful ramp onto the Internet." In March, CompuServe added WOW, which again is directed to new users, to its online stable.

ISPs are adding more services to attract more users. AT&T struck deals with AOL along with other firms that provide online content. The deal with AOL allows WorldNet users to connect to AOL's proprietary content at a reduced rate. At press time, AT&T was also talking with CompuServe and Prodigy to provide links to their services similar to the deal made with AOL.

"Pipeline is primarily an ISP, but we are also providing virtual communities for our customers, as well as value-added services such as Web page hosting and video-conferencing," comments Nteta. The blurring of the lines between ISPs and commercial content providers will become even more blurred as the battle for your business escalates.