Is the end nigh for unmetered ISPs?

It's the stuff that dreams are made of: a service that promises to enable internet users across the UK to stay online for as long as they want without having to worry about call charges.

But the unmetered access dream is rapidly turning into a nightmare as the much-hyped sector heads for the rocks, and provider after provider pulls out of the race.

At first glance, the news is not good. Over the weekend, LineOne fell by the wayside, pleading that over-subscription and bandwidth-hogging users who stayed online 24 hours a day had proved too much for its infrastructure.

A LineOne spokesman said the company had severely underestimated the demand for its service and had been hit by heavy costs. "Certain users took advantage of the unlimited access and a small number even accounted for four times the amount of hours than predicted," he claimed.

But LineOne's move follows in the footsteps of ISPs such as Virgin Net and Freeserve, which have all got cold feet about providing unmetered access services due to fears over costs and the clogging effects of mass demand on their networks.

The wrong model
Dale Vile, a senior analyst at Bloor Research, said the existing UK unmetered access model had always been unlikely to work, however. "The ISPs were buying BT's Surftime product, which allows them to provide unmetered calls after hours and during the weekend. They were hoping that advertising on their home pages would subsidise the cost of providing totally free access."

Most of the people using free internet access accounts were children who were not interested in buying anything anyway, said Vile. "I was a LineOne customer. I don't think I ever visited its home page. I would just dial up and go elsewhere," he added.

The so-called free ISPs sold their service to advertisers based on the number of customers they claimed to have. But Bloor's research found these figures to be misleading, because many users register with a number of different ISPs. As a result, the average number of hits on an unmetered ISP's home page is substantially lower than companies that buy the advertising space would like.

The research company also found that many users were dissatisfied with the quality of service offered by unmetered providers. "Serious internet users were still paying for their access because the lines were more reliable. At the end of the day, someone has to pay for unlimited access and you can't run a Rolls-Royce service on a Mondeo budget," said Vile.

As a result, Bloor suggests that those wanting unlimited access should look at asymmetric digital subscriber line (ADSL) when it becomes available, because this technology means that lines are open all the time but are less affected by bandwidth problems.

Claire Gilbert, chairman of the Internet Service Providers Association, admitted that some ISPs had run aground by associating their ecommerce strategy too closely with other revenue-gathering activities. "It is a huge gamble for an ISP to take and it has not paid off in some cases," she said.

However, Gilbert added that the main problem ISPs face is BT's failure to offer a reasonable pricing structure for them to provide unmetered access, despite orders from UK telecoms regulator Oftel for it to deliver one in May. "BT has always claimed there is some sort of capacity problem that prevented it from doing it," she said.

But according to both Oftel and BT, this statement is untrue. They claim that the watchdog told BT to sell Surftime at a discounted rate to ISPs in May, while also demanding that BT provide a wholesale product called Flat Rate Internet Access Call Originator, or Friaco.

The benefit of Friaco is that ISPs pay a lot less to subscribe to the service, but the downside is that they are responsible for developing and maintaining their own infrastructure. But according to sources within BT, not one ISP has signed up to the scheme because they do not want to spend the huge amounts of cash required to deal with infrastructure issues.

Instead, they have joined the more expensive Surftime initiative because BT takes responsibility for looking after the infrastructure.

A BT spokesman said that, while ISPs were keen to blame the telco for the current situation in the unmetered access market, the reality was that they did not want to put their own infrastructure at risk when trying to provide a sufficiently high-capacity service. "It is possible that they are trying to apply pressure for us to further discount the cost of Surftime," he added.

However, an Oftel spokesman remained optimistic that Friaco would take off in the long term. "It is still a very new programme and I think there will be some takeup soon. We made provisions in the Surftime contract that will enable ISPs to transfer to Friaco and we expect they will." If this happens, the cost of unmetered access calls for users will drop still further, he added.

Infrastructure costs
One company unaffected by the Friaco argument is NTL, which being a cable company does not have to worry about local loop costs. But an NTL spokeswoman said the company needed to spend £1m a day on infrastructure to support its unmetered service - an indication of the huge investment required.

NTL has upset many consumers, however, by only permitting new customers to join its service in dribs and drabs as it puts its infrastructure in place. As a result, many people that expected to be able to use the service by June will now have to wait until August. "However, we are getting there and it is not at the expense of our network," said the spokeswoman.

But unlike other ISPs, NTL does not have to make money from its internet service. "Our customers will have a telephone [service] with us. Some of them will have a digital television connection, and the free internet access will be an additional service that will attract new customers to us," she said.

The logic is that customers will hand over their entire telephone account to NTL and may even splash out on other cable products if they think they can offset a huge internet bill.

But if the NTL spokeswoman is right, conventional ISPs might not be able to compete against suppliers that offer their products free of charge. This means that cable companies, once considered the poor relation of telcos, might have the opportunity to become a driving force in the UK internet access market.