This piece first appeared in The Daily Telegraph on 30 October  1999
The text here may not be identical to the published text

Now talk concentrates on cost

Internet tariffs

BT is facing another problem over what to charge people for using the internet. At the moment it makes the same local call charge as for a voice call - 4p a minute in the day, 1.5p in the evenings and 1p a minute at weekends. But generally internet sessions last longer than conversations and once connected the cost of carrying the call is small.

Around one in four internet service providers are 'free' that is they do not charge any monthly fee for internet access. The only cost is the cost of the phone call. Now some are trying to find a way to be cheaper than free. That means cutting the call cost to less than the cost of a local call. Phone charges have been identified as the main barrier to people in the UK using the internet as freely as they do in the United States of America - where in many states local calls come free as part of the monthly rental. The result is that internet users in the UK spend less than 20 minutes a day on line. In the United States of America it is nearer an hour and half.

At the moment the so-called 'free' internet service providers (ISPs) - such as Freeserve - charge no monthly fee but make money from the cost of the phone call. They are on a local rate number - 0845, 0645, 0345 - which costs the customer the same as a BT local call. But in fact, BT is selling the capacity to the service provider in bulk, and passes on most of what the customer pays - up to 90% in some cases - to Energis or NTL which handles the call. The ISP is then given a share of that revenue. And the bigger the ISP the bigger the share it can negotiate. Hence the need to be big - very big like Freeserve with its million and half customers.

But there is a dragon on the horizon of this cozy relationship. The UK's biggest cable company, NTL, has just started offering some of its cable customers permanent high-speed connection to the internet for a flat-rate monthly fee. NTL has begun to roll out this service in its Sussex franchise. For 40 a month and about 300 for a new modem and card for the computer, domestic users can be linked permanently to the internet at approximately ten times the speed of connections over conventional phone lines. The other major cable company Telewest will be rolling out a similar service early next year. And as it spreads, the pressure will be on BT to offer something similar. Already it is putting high speed ADSL lines in its exchanges.

BT told The Daily Telegraph this week "We are in debate with various organisations about the cost of internet access, looking at the issue of internet pricing, looking at how it might change."

But BT may be too late. AOL UK, the second biggest ISP in Britain already offers its customers off-peak call rates to the internet of 1p a minute at all times for a monthly fee of 9.99. It has already piloted free calls to the internet and could roll out a national plan shortly. It will do that it by leasing sufficient capacity from BT at a fixed fee and then letting its customers use it. If it can strike the right balance between the cost of the capacity, the number of people paying for it, and the monthly fee, there will be money to be made. And the more customers are on line, the more it can charge for adverts and commercial space on its website.

All these changes will begin to put pressure on BT to cut its local call charges - why should customers pay 4p a minute to speak to a neighbour during the day but nothing to use the internet? And then inevitably pressure will mount on the milch-cow that makes all big telecoms operators very rich - international calls. If internet users can contact computers all over the world free of any per-minute charge for nothing except a modest monthly fee, why should they pay BT 49p a minute to speak to Auntie Clara in Sydney? It is a question that one day will have to be answered.

30 October 1999

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