LineOne's announcement that it will scrap its unmetered internet service because it is too expensive to run was inevitable, experts have said.
According to industry watchers, funding unmetered services with advertising and ecommerce revenue is not viable, and ISPs using this model are unlikely to make money.
ISPs have also been caught out by underestimating demand for unmetered services, which has led to many services suffering registration and congestion difficulties. Some ISPs have blamed BT for delaying its wholesale unmetered service.
David Lewin, an analyst at Ovum, said: "Companies have offered services at low prices with the idea of recovering costs through advertising and ecommerce. However, it seems so inevitable that this model is unlikely to make money.
"It seems that companies have rushed in offering services at low prices and this is now what consumers will continue to expect. Companies have actually slowed the market down."
Ian Durndell, senior business development manager at Excite Europe, said that he expects LineOne's announcement to prompt other unmetered ISPs to review their revenue-generating models.
He said Excite is "reasonably confident" that it can control its unmetered service by limiting advertising and keeping a close eye on revenue. Excite, in conjunction with the Free Internet Group, offers users 24x7 internet access for an initial membership fee of £50 and a £50 annual renewal fee.
"We are reasonably confident that our service can cope with customer demand. We have limited our marketing and advertising, and have been able to keep an eye on revenue. Some companies have perhaps created too much demand. We have no reason to change our model but will always monitor the service," Durndell said.
Sarah Skinner, European internet analyst at Durlacher, said ISPs cannot offer a quality of service without generating revenue. "It will become a case of what you pay for is what you get. If consumers pay nothing, the quality won't be given. People will be prepared to pay that bit more for a quality of service. The price level will guarantee levels of quality," she said.
However, AOL, which has held back from offering its customers an unmetered service, said the real problem is the delayed availability of BT's wholesale unmetered service, which will let operators offer rival services to the telco's Surftime unmetered service.
Matt Peacock, director of corporate communications at AOL UK, said: "LineOne's announcement underlines the growing urgency for BT to respond to industry and consumer demand. We still do not have [this service] and the question is how long can BT not give UK consumers what they want?"
UK telecoms regulator Oftel said yesterday that it expects these services to be rolled out shortly. "This is a whole new technology and it does take time. We expect operators to finalise agreements with BT very shortly and we will soon see services based on the wholesale package," said an Oftel spokesman.
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