We're hearing from several sources over the past few days that AT&T is raising the wholesale loop charges for ISPs who do business with them. It looks like the changes should officially start on May 16, 2008, but you may start seeing your independent ISP raising DSL prices before then if they work with AT&T (some may be noticing the price hikes already). Small ISPs, for whom it's already hard enough to do business, aren't pleased.

"The interesting thing is that even if you sold DSL service through AT&Ts "Term Pricing Plan" -- your rates are still going up," a high-level executive at one ISP tells us. "Even though you pay a higher price premium wholesale versus their "Zero Volume Commitment" (aka month to month), and they still can raise your rates."

A document obtained by Broadband Reports confirms the May 16 hikes, and shows that while AT&T is lowering the wholesale price of their highest tier slightly, they're raising the price of the majority of their wholesale tiers by 44-46%. This of course comes on the heels of AT&T raising their own retail DSL prices by $5.

The problem for many ISPs is that they've given customers 12 months assurances of price, and they won't be able to pass this price hike along until those contracts are up. -Industry Executive

"The problem for many ISPs is that they've given customers 12 months assurances of price, and they won't be able to pass this price hike along until those contracts are up," says a high-level executive at another ISP. "For ISPs that offer customers some sort of re-rate contract it could mean nearly 12 months of down side."

Said exec gives us a concrete example of the kind of financial hit this incurs based on the new rates. "For an ISP with 5,000 customers, they'd be out $16,500/mo, for an "average" of nine months (presuming an average 3/4 of a year contract worth of liability per customer). That's potentially a $150,000 hit to the small example ISP."

All of this of course eventually gets passed on to you, the consumer. And as you are seeing rate hikes, this is a service that's getting less and less costly for AT&T to deploy.

"Bandwidth is getting cheaper, DSLAM ports are cheaper, modems are cheaper and fiber infrastructure (from RTs to COs, and between COs to POPs where Internet bandwidth is purchase) now has virtually limitless capacity thanks to DWDM," says one source. Of course he reminds us that hikes aren't based on cost, but what the market will bear.

In other words, AT&T is simply raising rates because they can. And they can because they aren't seeing healthy competition in the U.S. market. It's good to be the king.

"If you take a $20 retail product and make it $25 -- as they have done -- you've got $5 more in your net - but the costs might be $15 - so while your profit was $5, now it's $10 - a doubling in profit," says one exec. "Then, even if 10% of the customers depart, you've still got a $9 profit, way over your $5 starting point. Your costs actually FALL because of the departures too."

"It's like minting money," he says.