Consumers win in big ISP merger

The big merger between EarthLink Network and MindSpring Enterprises doesn't just create a big Net player; it could also create a boon for Net consumers as Internet service providers scramble to sign them up.

With about 3 million subscribers, the deal makes the combined EarthLink (Nasdaq: ELNK) the second largest ISP. It is still far behind behemoth America Online Inc.'s near 19 million users, good for more than 50 percent of the market.

EarthLink and MindSpring officials made it clear that they intend to take on AOL (NYSE:AOL), but they will be facing some serious competition from Microsoft Corp.'s MSN service and AT&T Corp.'s WorldNet.

And it's that competition that bodes well for consumers.

For one thing, the recent spate of deals, rebates and discounts isn't likely to let up now, analysts said.

Locking up users
"What you're seeing with a lot of these deals is that they lock up users for long periods of time," said Zia Daniell Wigder, analyst at Jupiter Communications. "That customer is much more valuable to them."

But Wigder said she did not think the rebates would get that much cheaper.

In fact, Microsoft's MSN service announced Thursday it will raise its $19.95 per month fee by $2.

"Prices are pretty low, right now," said Microsoft President Steve Ballmer. "If you are paying $400 to get a customer for three years, that's pretty close to net zero."

Where there may be some serious competition is in the services that these companies offer consumers to get them to remain customers. Churn -- or switching among various service providers -- is a major problem for ISPs, and one of the reasons those rebate deals often have terms of three years. EarthLink CEO Garry Betty even said during a press conference today that a considerable percentage of his companies new users have come from another ISP, usually AOL.

So figuring out ways to keep consumers happy where they are will be the new battle. And in that fight, the ISPs will be looking to AOL for tips.

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"AOL dominates the market, but that money just doesn't go for ISP services. Those people are (also) paying for the AOL experience," said Kathy Hale, principal analyst at market researcher Dataquest of San Jose, Calif. "EarthLink and MindSpring have figured out that they're better at answering the phone (than AOL) but somehow content matters."

Both EarthLink and MindSpring recently redesigned their interfaces to be "more like AOL" Hale said. Microsoft and AT&T will be quick to offer more content and services that can keep users content and loyal.

Telephone bundling expected from AT&T
For AT&T (NYSE:T), that could include extensive bundling with its telephone and cable properties.

Microsoft (Nasdaq:MSFT) has repeatedly tried to revamp its MSN service and today announced its intention to make the Web an everyday experience for consumers.

Among other improvements, the company announced a new search engine for MSN.com and a small-business portal called bCentral. Microsoft also signalled its intention to bring the Web to users regardless of location or device.

"Microsoft constantly reinvents itself. You'll continue to see them pushing forward," Wigder said. "Microsoft is still deciding if its wants to be a media company or not."