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Tuesday, 22 August, 2000, 14:27 GMT 15:27 UK
Battle for the internet
Altavista's web sirte
So will its new offer prove a smart move
The withdrawal from unmetered internet access by Altavista and other operators is the latest round in the development of the world wide web in the UK. BBC News Online looks the battle for survival in the Internet Service Provider market.

The UK's internet market is unique.

In most countries in Europe, the main telephone companies are the internet service providers through which people access the web.

Deutsche Telekom's T-Online, France Telecom's Wanadoo, and Telefonica's Telia in Spain all dominate their home markets.

Most of them now offer unlimited access for a monthly charge.

In Britain, however, British Telecom has failed to establish a dominant position as an ISP - leaving the way open for other operators to grab market share

BT was reluctant to offer unlimited access because the growing volume of internet-related calls was among its most profitable activities, in a market where telephone volumes were otherwise static and the price of international calls was falling.

It was only after pressure from the regulator, Oftel that BT announced plans to offer unlimited access for a fixed monthly fee. But its charges are still high - 35 a month for full unlimited access.

Oftel has also required BT to offer a "wholesale" service to other ISPs.

BT's failure to capitalise on its dominant position has opened the way for other ISPs.

The biggest success has been Freeserve, which capitalised on the unique UK "inter-connect" charge rules. That allowed it to become Britain's largest ISP offering its version of "free" internet access paid for by the company receiving a portion of the local phone charges collected by BT.

About 200 other ISPs adopted the Freeserve model of free access paid for by telephone charges.

But that model can still be expensive for people who use the internet a lot, especially if they surf during peak time hours. stock fever

Since December, the government and the telecoms regulator have been pushing for ISPs to offer unmetered access, where people pay a fixed fee for internet use.

That is the model used in the United States, where average internet usage is twice as high per person as in Britain. The government hopes that such a development will encourage the development of e-commerce as people spend more time shopping on the web.

In March, US portal Altavista tried to jump-start the process by offering free internet access for life for a fixed fee.

Originally it was believed that Altavista's move was related to the plans by its owner, the internet incubator company CMGI, to float it on the stockmarket.

The value of internet companies, few of whom make a profit, is usually based on the number of regular visitors to their site.

Freeserve, for example, with a market value of 9bn and 1.7m users, values each user at more than 5,000.

The 270,000 customers Altavista signed up could have added around 1bn to its stock market value.

But since then, the stock market value of many internet companies has come down sharply, as investors focus on their rising costs and potential cash flow problems.

The problems of maintaining an unlimited service at a loss for a long period of time may no longer have seemed attractive to Altavista's owners.

In for the long-haul

Altavista's move forced other companies, notably NTL and Freeserve, to follow suit.

World Online, a European wide ISP that had acquired UK local telephone company Locatel, also joined around 30 other operators.

Freeserve and World Online say they are plan to stay in the business for the long term, and are prepared to bear the losses in order to attract more customers.

But Freeserve has had to limit the numbers of unmetered users after their heavy usage pattern threatened to disrupt the network.

The company also coped by reselling BT's own Surftime package to some users, and gaining part of the revenues paid to its telecoms partner Energis when people buy both unmetered access and telephone charges.

World Online has also benefited from having its own telecoms supplier to negotiate with BT.

It argues that only a few players will have the financial staying power to continue with unmetered access - and they will be among the winners.

The cable television companies, who are in the midst of their own consolidation, do not suffer from the capacity problems of other operators.

NTL and other cable operators do not have to deliver their service through other company's phone lines, paying them charges. So it really is "free" in the sense that they have vast, unused capacity in their networks already.

But they have also been delayed in the launch of their free services by the need to roll out new expensive digital services across the country, and the need to cable up large areas of Britain to provide that service.

Many models possible

The more developed US market shows that the "first mover" may have the advantage as an ISP - because many people like to stick with what they find most convenient.

Nearly half of all US homes use America Online or its subsidiary Compuserve, despite a $21.99 (15) monthly subscription charge for unlimited access. .

The battle over unmetered access may have moved on in the UK.

But waiting in the wings are three other technologies that could revolutionise the way we use the internet.

The first is the mobile phone. The new generation of mobile phones which the government is now auctioning frequencies at 1bn each will be able to receive full internet services, including video on demand.

The second is television. Sky Digital, backed by Rupert Murdoch, will allow viewers to access a limited interactive, internet-type service called Open.

And the third new service is high-speed internet access through broadband cables. This will allow individuals to have a fast internet connection (up to 100 times existing download times) which is always "on" and can play videos and music instantly.

This is being rolled out by cable operators in the next few months - and BT is offering a similar service (called ADSL) which will be sent through phone lines.

Although it will initially cost about 50 a month, many experts believe in the long run these services will eventually replace the current "dial-up" model of internet access.

With so much to play for, no one can be sure what the shape of the UK internet service market will look like in a few years time.

See also:

06 Mar 00 | Business
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15 Nov 99 | The Company File
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