Broadband providers slash prices

The broadband battle is heating up as an increasing number of internet service providers (ISPs) slash prices to tempt surfers.

As telecoms watchdog Oftel announced that broadband take up in the UK had broken the magic one million user mark, AOL and Nildram joined a host of ISPs in cutting prices to draw internet users away from unmetered dial-up services.

But many analysts are warning that ISPs will eventually be forced to raise their prices.

With around 11 million UK households connected to the internet, mainly through unmetered dial-up services, public interest in broadband has been muted since the first public broadband services were introduced two years ago.

In recent weeks a number of ISPs have drastically undercut the leading players, including BT and Freeserve, by offering sub-£20 per month deals for broadband services.

Reports suggest that around 20,000 customers have been signing up every day.

AOL will launch a second-tier broadband service from November which, at £27.99 per month, undercuts its original broadband package by £7.

A one-off charge of £85 for the modem pack is levied for new users, but customers on the £34.99 Broadband Plus package can migrate to the lower price without charge.

Both services provide a download speed of 512Kbps and offer the same content and features, except that customers who stay with Broadband Plus are given unmetered dial up access as well.

Those opting for the lower price will able to use a metered dial up service for the price of a local call.

"This gives our customers a backup connection and flexibility as well," an AOL representative told vnunet.com.

Nildram also announced today that it is to combine its 512Kbps Home500 services and shave £6 per month off the price, bringing the cost down to £29.99 per month.

It will also reduce the minimum contract period from 12 months to three, and is offering new customers two ways of signing up to broadband.

Iain Ogilvie, Nildram's marketing manager, suggested that new users might prefer to spread the cost of connection.

"They can either take the basic Home500 service and pay a connection charge of £58.75, or take the Home500 Free Start which is a minimum 12 month contract at £35.99 [per month] but with free activation," he said.

However, if broadband becomes as popular as the unmetered services, many industry experts feel that ISPs will be forced to cap the services or raise prices to maintain current user ratios, especially as it costs £14.75 per month to buy an ADSL line from BT.

Dan Stevenson, a telecoms analyst at Jupiter, said: "I don't believe they can make this business model work.

"We saw the same thing happen in the Nordic countries and the US, where the very low prices were unsustainable and we saw real difficulties with customer services. It's the reason why so many ISPs went out of business."