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Tuesday, 7 March, 2000, 17:26 GMT
Q&A: Internet price wars

Altavista and NTL have said they will introduce free internet usage without charging for the telephone call. BBC News Online explains what it all means for the average internet user.

Why have companies such as NTL and Altavista offered cheap internet access now?

Because they can. They want to be in the market first, to catch early market share. It's about them building an audience (and thus revenue base) early to be a step ahead of other providers.

Are other companies likely to follow suit?

Other companies are expected to follow suit. The internet is becoming such a competitive industry that companies such as Freeserve, BT and AOL are not going to be able to continue charging users for phone calls by the minute without losing customers. The Prime Minister, Tony Blair, welcomed this week's developments and said he was sure that companies such as BT would now be ready to "break new ground" following the offer by NTL for free access.

Are there any catches consumers should be aware of?

Indeed. There is no such thing yet in this country as true free access. NTL for example is offering free access only to existing subscribers to its telephony and cable services, so those customers are already paying. Some providers like Altavista charge an upfront flat fee and an annual fee (which could change) and then give access on a toll-free number. Consumers must be aware of the wording and context of "free".

How can companies afford to give free access?

They are unlikely to make much money out of these access deals but for many internet operators profits are not a priority initially. The focus is on signing up as many customers as possible.

Alta Vista said yesterday that they planned to cover the cost of the phone charges through advertising, sponsorship and e-commerce. They are also charging a subscription fee.

NTL will be trying to make money out of signing up more cable and phone customers who they hope will take more of their digital TV services.

Altavista hopes to list itself on the stock market soon, and its share price will benefit from having more customers, even if they initially generate any money.

NTL is hoping to merge with Cable and Wireless, which provides the residential telephone service rivalling BT, so it is in its interest to sign up as many people as possible to its telephone service.

Is this likely to mean that just as many people in Britain get on the internet as in the United States?

Well, free access will remove the cost impediment, but there is still a sizeable portion of the British population who say they won't go online, regardless of free access (fear of using computers/set-up costs of hardware).

We have some way to go before we reach the American penetration model, but cost of online charges has been the biggest factor stopping Britons getting on the web. Once that has been removed, penetration should get a lot higher. However, we already spend more time online than our Continental counterparts and do more business over the web.

Will there still be a "digital divide" in Britain despite government efforts to eliminate it?

Absolutely - there will always be the "haves" and "have nots". Within lower income brackets, the www is something of a pipedream, especially at home. This might change with access in schools and libraries, but if Mr Blair's vision of having people online at home is to be believed, there is a tremendous amount of work to be done.

The government is determined that the internet should be accessible to everyone, not just the young and affluent. With the backing of Westminster, this could be realised, but as it stands, the digital divide is a "real and present danger".

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See also:

07 Mar 00 | Business
Internet price war heats up
06 Mar 00 | Business
Altavista heralds net revolution
07 Mar 00 | Business
Battle for the internet
07 Dec 99 | Business
BT offers unmetered net access
15 Nov 99 | The Company File
BT's 'flawed' internet deal
15 Nov 99 | The Economy
BT cuts internet call costs
30 Jul 99 | Sci/Tech
ADSL priced high for consumer
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