This is not a good year to be a monopoly. While the US government takes Microsoft to task, on these shores the spotlight is increasingly turning onto BT, the company that still controls 85% of the UK's national telecoms infrastructure. With profits running at £105 a second, BT is certainly a financial success story. But does BT put profits before innovation and new services? There is still no truly mass-market broadband service, and concern is growing that next-generation broadband asymmetric digital subscriber line (ADSL) technology will be highly priced and slow to emerge. Meanwhile, basic web access is billed on a per-second basis, which penalises heavy web users. Debate over price and speed of service availability is not new. Now, however, the hurtling pace of ecommerce adds a sense of urgency. Some fear that UK.com is falling behind the rest of the world. For the first time since 1980, when the then Conservative government pledged to break BT's national monopoly, politicians are debating the telco's future. 'The pricing structures we have (for Internet calls) are not right at the moment,' acknowledged eminister Patricia Hewitt in the wake of the launch of the Electronic Communications Bill. Telecoms regulator Oftel is under 'ministerial pressure' to come up with measures to widen Net access, she added. MPs this month called for BT to be broken up. BT rejects the criticisms, and its executives are haggling with Oftel over the pace at which its local loop - the connection between national networks and customers' doorsteps - is opened to competition, which is scheduled for 2001. A deal was to have been signed in October. BT initially came under fire from politicians and users because of the way it charges for dial-up web access, used by the majority of homes and small businesses. Basic Internet access is billed on a per-second basis. In many parts of the US, unmetered local calls for Net access are paid for by a high line rental. Tim Johnson, an analyst at researcher Ovum, says customers feel particularly aggrieved because BT's profits are soaring. Profits for the half year announced in November exceeded City expectations at #10,316 billion, up from #8,642 billion in the previous year. Despite the fact that Net access calls are a relatively low-profit service for BT, businesses and consumers put two and two together and get a rip-off monopolist. Analysis submitted to a parliamentary inquiry on ecommerce by telecoms academic Thomas Long, fellow at Glasgow University, shows that UK users get a raw deal compared to their US counterparts. Line rental from California's dominant local operator, Pacific Bell, is 13% cheaper than from BT. A five-minute local call is 117% cheaper in the evenings and 309% cheaper during peak times, when compared with BT's tariffs. BT chief executive Sir Peter Bonfield feels justified charging for local calls because many UK Internet service providers (ISPs) operate a service supposedly free to the user, although the user pays for the call. Providers earn their money from a portion of the call fee, whereas a service provider such as AOL charges $21.95 (#13) a month for unmetered access. Frequent web users - those making about 100 five-minute, peak-time calls a month - fare better under this flat-rate fee. Despite Bonfield's protestations, the industry is moving to further drive down call prices. Last month, ISP Callnet0800 launched with a freephone 0800 number for Internet calls. The service is a loss leader, designed to lose money simply to gain market share, but it has proved very popular. Oftel reversed scepticism over unmetered local calls, aided perhaps by political pressure. 'You might think that, but I couldn't possibly comment,' says Hewitt with a wry smile. The regulator is reviewing the rules governing how telephony revenues are shared between ISPs and BT. Service providers are allowed to set different call rates. Oftel says it 'is not against' unmetered local calls for the Net. A spokesman said the regulator would 'intervene' if BT and an ISP could not reach a commercial agreement over a pricing package, which would allow an ISP to offer an unmetered service. Call charges, however, will rapidly become an outmoded issue with the introduction of next-generation broadband technology, initially ADSL. This technology will not settle debate over BT's future, however, and there is concern over ADSL's halting deployment. The mid to late 1990s has seen a long-running battle over the pricing of earlier broadband technology ISDN, which has pitted frustrated users and trade bodies against the telco. Meanwhile, regulators in other countries, notably Germany, pushed for cheaper ISDN. Today ISDN is not widely used in homes or small businesses across the UK. Worse still, the European Commission this week published research that shows BT is charging among the highest prices in Europe for 64K leased lines, and ranks mid-table in prices for 2Mbit leased circuits. BT is the fourth most expensive for 64K lines at EUR250 (#158) a month, compared with EUR100 in Finland and EUR80 in Germany. For 2Mbit lines, BT charges EUR600 a month, compared with EUR500 in Germany and EUR300 in Finland. Yet the telco's failure to promote ISDN or competitively-priced leased-line services has not seriously damaged take-up of the Net in the UK. Germany is slightly behind the UK in Internet use, and is level on ecommerce volumes. Online business accounts for 0.1% of both countries' gross domestic product. The fear is that in rolling out ADSL, which offers speeds from 512K to more than 2Mbits, BT will repeat past sins, making services highly priced and available slowly. 'BT hasn't done enough to encourage cheap or broadband Internet access in the UK,' says David Harrington, director general of the Telecommunications Managers Association (TMA). Availability and cost of BT's services were high on the agenda at this week's annual TMA conference in Brighton. BT is certainly late rolling out ADSL. The telco's ADSL service will be rolled out next March, starting with 400 local exchanges, nearly two years later than carriers in the US, Singapore, Germany, France and Belgium. The telco describes its plans as 'aggressive', but Harrington disagrees. 'It's all very pedestrian,' he says. No one can say what price BT will charge for the technology, partly because it hasn't set any tariffs and ADSL will be resold through ISPs, including BT. When the telco conducted a trial of the technology in west London, prices rose from #30 a month to #50 a month. ADSL is charged on a monthly basis because the connection is 'always on', so there are no metered charges. BT pre-sales staff, who have spoken to Computing, say they believe that the telco's final charges will range from #80 to #150 a month, rather than the #40 to #150 promised in BT's launch announcement in July. BT staff expect ISPs to undercut the telco and sell ADSL at a loss, with prices starting around #40 to #50. There may also be a connection fee, but the level of this is unclear. Johnson says BT's proposed pricing would be 'reasonably competitive when the up-front fees (connection) and ISP charges are taken into account', compared with prices charged by foreign telcos. US telco Bell Atlantic charges $39.95 (#24.71) a month plus $198 installation; $325 for a modem; and $10 a month for ISP charges. German Deutsche Telekom charges 99DM (#32.46) plus 229DM for installation, and 0.1DM per hour over 50 hours a month (see box on left). On the issue of rollout, Oftel plans action. It was due this week to announce plans to speed up ADSL availability following the conclusion of talks over the 'unbundling' of the local loop - the process of opening up access to BT's copper wires connecting local exchanges to homes and businesses. The agreement will detail the terms and conditions under which ISPs will have access to BT's ADSL exchanges, and in May 2001 will give competitors the right to forcibly upgrade BT exchanges with ADSL. Unbundling the local loop represents the Holy Grail for long-term competitive growth in telecoms. Labour MP Derek Wyatt, chairman of the all-party Internet committee, says unbundling should be the pre-cursor to BT's break-up, and that the telco should be split between a network owner and a service provider. This model imitates British Rail's privatisation, where Railtrack inherited the track infrastructure and different train operators provide services. 'My view is that it should just be the Railtrack (network owner),' he says. Wyatt is a backbencher, so breaking up BT some way from being a serious political option. Maybe breaking up BT is not a fate deserved by the telco or its customers. Delays over unmetered calls, ISDN and ADSL have not yet seriously affected UK.com, and the unmetering issue is poised to fade as cheaper ISPs emerge and Oftel reacts to government pressure. The last, but crucial, battle is over ADSL. BT must find the courage to seed the market with cheap prices and services, and to press on with the rollout - or Oftel should do it for the telco. Otherwise, with users and companies facing high online prices, the loser will be UK.com.
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