What next for unmetered access?

When Altavista promised unmetered internet access for UK consumers earlier this year, it was seen as the start of the internet revolution.

For an annual fee, UK consumers would have free unlimited internet access free of telephone charges.

Other companies jumped on the unmetered access bandwagon, but many fell off again just as quickly.

Now Altavista has admitted that its service never really existed. The question now is when will UK consumers enjoy unmetered internet access?

Blaming BT

Altavista has blamed BT for its failure to launch a service, a claim BT has dismissed.

BT charges internet service providers by the minute to use its lines, rather than charge a flat rate. Many ISPs are then automatically making a loss, as they have to pay BT more than they can charge their subscribers for the service.

You get what you pay for. You may be able to get free service if you have no guarantee of getting online

Sarah Skinner, analyst at Durlacher

BT came under fire from, among others, the Chancellor of the Exchequer Gordon Brown, for holding up competition.

In May, phone regulator Oftel told the telecoms giant to offer its rivals deals for Flat Rate Internet Access Call Origination (FRIACO).

David Edmonds, Oftel director general of Telecommunications said:"It is vital for the UK's vibrant internet market that other operators and ISPs can compete fairly and offer similar products to their own customers.

"Oftel's decision will enable other operators and ISPs to offer competing unmetered access using BT's local network."

Sort of free

BT has denied that it is blocking progress on unmetered access, and says it has offered wholesale flat rate lines to its competitors in response to Oftel's concerns.

This is kind of true.

Since 1 June, BT has offered unmetered access of sorts, Oftel says.

"Some of the telecom companies weren't overly happy about how BT was providing it," an Oftel spokesperson said.

While BT is providing a flat-rate product, they are providing it from their local exchanges. Most telecom companies interconnect with BT at the main exchange.

For telecom companies to access the service, BT has to provide them with leased lines or they have to build lines to the local exchange themselves.

So, while ISPs pay a flat rate for part of the BT service, they have to pay by the second for connection to the local exchange.

Negotiations are ongoing with BT, the Oftel spokesperson said, adding that it is conducting its own independent research.

Freeserve carries on - just

The leading UK ISP, Freeserve, says it has no plans to scrap its unmetered access to the internet which has attracted 140,000 customers.

Freeserve told BBC News Online that it is currently offering the service as a loss-leader, but says it will make money when BT finally offers a fully flat-rate service.

Freeserve has now limited capacity to recruiting only 10,000 new users each month - and it has stopped publicising its unmetered service on its website until September.

Freeserve has several advantages over some rival ISPs.

First, it offers BT's own Surftime off-peak service through its website, with a discount of £1 per month, in order to encourage more traffic.

Secondly, it has managed to get a share of the telephone revenues that flow from its £10 per month unlimited, unmetered access offer, making the service more financially viable.

And thirdly, through its partner Energis, it is in the process of negotiating more capacity directly with BT in advance of BT's full roll-out of unmetered wholesale lines.

Money for nothing

Even if BT did offer a truly flat rate, it is difficult for ISPs to make money from offering a free service.

ISPs offering unmetered web access typically try to make money by either charging a flat rate or by forcing users to subscribe to access telecom services.

Altavista underestimated how difficult it would be to offer unmetered access, another analyst said.

"I think they probably announced it too soon, before they worked out the full cost implications," said Jason Streets of investment bank UBS Warburg.

"There are all sorts of problems with offering unmetered access before you know what it's going to cost...I think somebody somewhere did the sums wrong about what the true cost of supplying this service would be," he added.

Only the most basic of services which don't guarantee a connection or offer support will be genuinely free, one analyst says.

"You get what you pay for. You may be able to get free service if you have no guarantees of getting online," Sarah Skinner, internet analyst at Durlacher said.

"Anyone offering free internet without receiving money for other offerings, is going to be in a hard place," she said.

Unmetered access exists in the US, but most services charge a subscription fee.

"Europe worked the other way around. It removed the subscription because it could still generate cash from local charges. If you move towards free subscription and no call charges, you have to look where you will get revenue," Ms Skinner added.

BT a scapegoat?

BT isn't so much the problem as the European regulatory system, where monopoly operators still wield enough control to stamp out competition

Some sceptics say Altavista is using BT as a scapegoat.

Altavista knew the regulatory lie of the land before they decided to offer the service.

At the time it dismissed critics, who said its proposal would not be feasible.

Some say that the company had one eye on its forthcoming IPO in its decision to end the free service.

Given investor scepticism about internet shares, Altavista may have been unwilling to shoulder losses in the UK internet market.

"If anything, pulling out of the UK internet access market provides AltaVista with an improved business model," the company said.