The UK telecommunications regulator Oftel has said it will not put a brake on the phenomenal growth of subscription-free access to the Internet.

Oftel DG David Edmonds talks to BBC News Online

In a long-awaited consultation document, it said there would be no immediate change to the phone call revenues structure being exploited by services offering free Internet access. More than seven million people are now online in the UK.

Oftel said it would protect the principle that the operator who provides the line, (BT in the 85% of cases concerning the first connection from home to local exchange) should receive its costs plus a reasonable return.

But it said it would be compensating BT only at the margins and the basic pricing structure would remain until at least August 2001.

Oftel wants Net to grow fast

"Enabling the huge growth in the use of the Internet to continue has been a key factor in my consideration of this dispute between the telephone operators that Oftel is ruling on," said Oftel's director general, David Edmonds.

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"A decision potentially increasing charges to consumers is not justified on the evidence I have considered."

BT had been arguing for a greater share of the call charges collected from users connecting to the Internet with the new non-subscription services such as Dixons Freeserve.

BT said the boom in use of the 0845 local call rate numbers, with Freeserve amassing a million accounts in less than five months, was putting increased pressure on a network it had to invest in to maintain.

The other operators argued BT should get less money because it was they who had generated extra call revenues under the so-called Number Translation Services (NTS).

BT will get revenue share changes

BT is in most cases responsible for the local loop, the final connection between the local exchange and the business or home.

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The free Internet Service Providers (ISPs) have been using other carriers the rest of the way to their servers and have been sharing these "interconnect" revenues with them. This compensated them for money lost in dropping the usual monthly subscription fees.

The ISPs feared that Oftel could give BT a greater share of the call charges and make their business model uneconomic.

Cheaper net calls on the way

The most radical Oftel proposal could mean the price of some calls to the Internet being less than the current local call rate.

The body said that ISPs should be able to reflect the type of service they are offering by setting different call charges.

This could mean that, instead of subscription charges, ISPs could cover their costs and make a profit solely from varying the call rate. for example, a basic Internet service could cost 0.5p a minute, but one with extra services and content could cost 2p a minute online.

"This would further stimulate competition and could lead to reduced charges to customers for basic Internet connection," Oftel said.

Oftel says its proposals are aimed at encouraging greater competition between service providers, a wider range of services to customers and giving more opportunity to generate additional revenue for operators.

Oftel DG say balance has been struck

"Internet service providers and their supporting telephone networks should be able to vary the prices they charge for a call, to reflect the level of service they provide to their customers," David Edmonds, OFTEL'S director general, said.

He suggested that a service that is supported through advertising and sales on an Internet Website could be priced below the current local call rate.

"I believe our proposals strike the right balance between supporting the growth of Internet use, and meeting the needs of the telephone operators and Internet service providers to generate the funds necessary to allow additional investment in their respective networks to cope with this growth," Edmonds said.

Consumers' cautious welcome

Internet users gave a cautious welcome to the Oftel document:

"Given that 'free' ISPs are a child of the regulator, stemming from decisions OFTEL made several years ago about their interconnect model which have returned to haunt them, they have made a creditable attempt to balance the interests of everyone involved in the current unsatisfactory situation, " said Alistair Scott, moderator of the Campaign for Unmetered Telecommunications (CUT), which is lobbying for free local calls.

"That OFTEL are now encouraging some flexibility in charging is excellent news; we will see what happens once ISPs go into the details of the announcement," he said.

David Clarke, chief executive of Virgin Net, warned that carriers with few switches around the country could end up paying a lot of money to BT under the proposals, because BT would be compensated for carrying the calls over much greater distances than the local loop.

He welcomed the decision not to look at changing the current structure till 2001. "It could be a whole different ball game by then. We will have to look at the amount of transaction and ad revenue there is for us at that time."

• The oldest free ISP, X-stream, is extending its totally-free Net access offer to every weekend in March. It gave account holders a toll-free 0800 number to dial this week to celebrate its first birthday. After a "massive response", the offer continues from midnight Friday to midnight Sunday for the rest of March.