The Logging On column in yesterday's Fast Forward section incorrectly reported that CompuServe and Prodigy require that customers pay for three years of Internet access in advance before receiving a $400 rebate on computer purchases. (Published 11/20/99)
What's $400 worth to you?
That's the offer being dangled by nationwide Internet service providers CompuServe and Prodigy: Sign up for three years of Internet access--which you were going to pay for anyway, right?--and get a $400 rebate on a new personal computer.
People seem to be buying it; CompuServe signed up 378,000 new subscribers from July through September, and a spokeswoman said "a good portion" of these customers came through what she called this "successful, very successful" program.
It certainly looks attractive when you can pick up a new Compaq Presario, H-P Pavilion or Apple iMac for $400 less than what you'd normally pay. But some time with a calculator suggests other dimensions to the offer.
First, you have to pay for that service in advance. In the case of CompuServe, it's $21.95 a month times 36 months, for $790.20. Prodigy, meanwhile, charges a little less, at $19.95, for a total bill of $718.20. At some stores you get the corresponding rebate instantly, but if not you have to wait for the check to arrive. The timing doesn't do any favors to cash-strapped buyers, especially if they're paying 18 percent credit-card interest.
Second, the rates you pay are no bargain. CompuServe's $21.95 charge exceeds its regular unlimited-access rate of $19.95; pre-paying for a year's service would cost you only $199, or about $16.50 a month. Prodigy does stick to its normal monthly rate, but its other subscribers can buy a year's service for $198, or $16.50 a month.
Under the CompuServe deal, you spend $390.20 for the three years of access, subtracting the rebate from the original payment--while simply pre-paying for three years of CompuService costs $597. In other words, you save $206.80, not $400. With Prodigy, you save $275.80. Many other Internet providers substantially undercut these companies' monthly and yearly rates, which can further diminish the potential savings.
The third, and larger issue, is the time commitment. Three years is a long time to stick with one provider, given both the changing state of the market (see how monthly costs have declined in the past three years, for instance) and the changing tastes of customers.
"Thirty-seven percent [of home Internet users] have at some point in their lives switched providers" said Jeff Moore, a researcher with the Strategis Group, a Washington-based telecommunications consulting firm. Thirty-eight percent of those who have switched did so in the last six months; he also noted 5.6 percent of home users say they plan to switch in the next three months.
If you do decide to stray from your three-year contract--or if you simply move to someplace where either provider doesn't have a local-call access number--you'll pay for it. CompuServe, for instance, charges a $50 cancellation fee, then asks for a varying amount of the rebate money back--if you bail in the first 12 months, you have to pay the entire $400 back, while if you cancel in the last year of the deal, you'll owe $200. Prodigy will want the whole $400 back if you cancel early, plus a $50 cancellation fee.
So what's a value-conscious buyer to do? If you want an account with either rebate-offering company in the first place, go for it--you will get a decent discount off the regular rates, assuming no drastic price cuts in the next three years. If you're interested in both of these companies, Prodigy has a slightly better deal, but with worse cancellation penalties. But if you just want Internet access and a low-cost computer, consider these options as well:
* Open an account with one of the free ISPs, if you don't mind the ads on the screen and the risk of relying on a still-unproven business model. Several million people in the United States have deemed this an acceptable risk, which (going by the current buzz among analysts and researchers) suggests that at least one of the free providers can make a go of it.
* If the dose of advertising with a free ISP bugs you, get a cheaper ISP. CompuServe's offer adds up to $10.84 a month, Prodigy's $8.84; both are numbers you can beat. See our directory of Internet providers
* Consider the subscription-based option of PeoplePC, a San Francisco-based start-up (http://www.peoplepc.com, 800-736-7537) that will lease a basic Compaq or Toshiba desktop, plus unlimited Internet access, for $24.95 a month. At the end of three years, you start over with a new lease on a new computer.
* Buy less time online. Not everybody spends every waking hour online; for those who just want to send the occasional e-mail, a 20-hours-a-month plan will do fine. CompuServe, for instance, offers one such option--for just $9.95 a month.
Looking to buy a computer? Have tips for other computer buyers? Rob Pegoraro hosts a live Web discussion on that very subject at 1 p.m. today. To join, visit www.washingtonpost.com.