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Thursday, November 11, 1999 Published at 18:50 GMT

Business: The Company File

BT's 'flawed' internet deal

Unmetered access is seen as crucial in encouraging internet use

The high cost of surfing the internet has been a long-standing complaint of UK consumers and e-commerce companies.

In contrast to the US, where local telephone calls are free, connecting to the internet can be an expensive business in Britain.

This week BT claimed to have cut the cost of using the internet by reducing its charges to internet service providers (ISPs).

Under its new plan, ISPs will be charged a flat fee of £140 per month per port. Each port serves 15-20 customers, so BT argues that companies could now afford to offer unlimited access at a flat rate of about £20 per month.

BT says it is responding to customer demand by this offering this new fee.

But others argue that the BT move will drive many of the existing free internet service providers out of business.

A cut - with a catch

The first problem is that BT's offer only applies to the largest of the UK's 300 ISPs.

Companies have to buy a minimum of 10,000 ports each month, so only ISPs with 150,000 to 200,000 users or more will benefit from the deal.

That could put a squeeze on the many smaller ISPs in the UK.

"10,000 is completely ridiculous ... for those rates, no one in his right mind would go for it," said a spokesman for Telinco, an infrastructure provider for ISPs.

Chris Ford, from Colloquium Internet, reviewed what is known of the proposals and concluded: "This service appears not to be aimed at true ISPs (where they deliver service) and the independent ISPs like us."

The flat fee only covers eight hours of usage per day, or 56 hours per week. After that BT reverts to metered pricing, at a lower rate of 1p per minute.

Threat to interconnect revenues

BT's scheme contains an even bigger threat to the free ISP model that has become dominant in the UK.

Previously, companies like Freeserve have been able to fund their free internet provision by taking a cut of the interconnect charges that are divided between BT and their own telecoms service provider, in Freeserve's case, Energis.

But the proposal from BT is likely to mean that any ISPs who sign up will have to use BT as their telecoms service provider.

At present about a fifth of the 300 ISPs in the UK use BT.

Freeserve, the UK's largest ISP, said it had been reducing its reliance on income from Energis fees, instead increasing the money it makes from e-commerce and advertising.

Not a revolutionary move

Energis spokesman Andy Speller welcomed BT's proposals as far they went, but said that they were not likely to have any dramatic effect on the market.

For a quality service, factoring in all the other costs likely to face an ISP, the likely cost of unmetered access per month would be considerably more than £20 per month.

He said: "It's good news if it stimulates demand, but I think this is an evolutionary step - not a revolutionary one."

It would not prompt Energis and its competitors to take dramatic action to defend their positions.

"There will be a niche for this, but not a very big one. It is not going to destroy the Freeserve model."

The next step in the changes will come when BT presents its proposals to industry regulator Oftel.

The organisation has to approve any changes to charging structures by the telecoms giant which made profits of £890m - or £100 per second - in the second quarter of the year.

Political pressure has been mounting on Oftel to ensure that BT does not act as a drag on the growth of internet use and e-commerce in the UK.

BT has already been accused of dragging its feet over upgrading its phone network to allow high speed ADSL internet connections.

Only when BT submits its proposals to Oftel will it be possible to see whether its proposals are truly revolutionary, or merely a step along the long slow road to low cost unmetered access in the UK.

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