How to Net a Bargain in the Price War

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Internet service providers (ISPs) are being forced to make fundamental changes to the way they do business. In five years or so, it should be possible to pipe all forms of media to homes and mobiles, and every ISP wants to capture the 80 per cent of UK households which are not yet connected to the internet.

As its shares take a dive, Freeserve, the UK’s largest internet service provider, is set to launch an unmetered package to combat the threat from its rivals. For access at off-peak times, customers who approach the internet through British Telecom lines will pay only £6.99 per month, starting in May. Freeserve was the first in the UK to offer a free service, with users paying for telephone calls only. But rival services are rattling the war drums.

Picking the best of the bargains is like finding a needle in a haystack. There are 400 or so ISPs operating in Britain at the moment, taking a cut from telephone charges, website advertising and e-commerce. But a leading technology analyst predicts that in five years there will be only five ISPs left, and inevitably, the small fish will be the first to go.

The cat was set among the pigeons when Altavista offered unlimited free access for a one-off fee of £35-£50 per year. 

NTL, a cable company which owns a network of underground fibreoptics,  then offered unlimited free access for a £10, one-off fee providing the customer spends £10 a month on voice calls. But NTL’s offer is restricted to its cable subscribers, and its foray into the internet is designed merely to grab new customers. According to Leigh Wood, chief European operating officer, they intend to pull  internet, TV and mobile phones into one package. In May, NTL will launch the first TV and internet service combined, and the rumour is that internet via mobile phone will follow soon.

Breathe fired the next salvo, promising internet connection for life, with no subscription fees and no call charges. Its revenue will come from e-commerce and advertising, and the mobile services which it will make available.  According to the company’s chief operating officer, Sean Gardner: “Breathe’s strategy will ensure that we stay one step ahead of increasing competition from mobile telecoms operators and internet startups”.

Breathe’s service will start in April, and will be limited initially to 50,000 of its existing customers – a wise move, as reputations will founder if the service is inundated and grinds to a halt. Be warned, though; Breathe’s service does not constitute permanent connection, so don’t expect to stay on line day and night.

From June, BT is offering residential customers unlimited evening and weekend access for £5.99 per month, on top of their monthly line rental of £9.26.  For this, they will also receive up to 80 minutes of inclusive voice calls; daytime calls will be charged at 1p per minute. Round-the-clock access will cost £29.99 per month, including line rental – and business customers will pay considerably more.

Oftel has dropped the restrictions which prevented BT from subsidising its internet from other milk-cows. On the other hand, BT must make its local loop available this summer to rival telecom companies, at the behest of Gordon Brown – one year sooner than was demanded by Oftel. The loop is a network of copper wire linking users to BT exchanges, which can be used to speed up internet access and which is already being eyed covetously by competitors.

LineOne’s offer stipulates that users must spend at least £5 a month on voice calls with Quip, its telecoms partner, but thereafter a £20 one-off fee will get you surfing.

AOL costs £9.99 (why not £10?) a month, and 1p per minute, while Demon charges £11.75 a month, and local call rates.  Are you still with me?

Some of the pressure for fixed rate access has come from Oftel, the telecoms regulator, which would like to change the way telecoms companies charge for the internet to reflect the fact that once a connection is made, the cost per minute is much lower.  

Pay your money and make your choice . Today, all the ISPs are fighting for your custom, hoping that inertia will make you stick with them in the years ahead. As for the winners and losers, it’s anybody’s guess.

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