LineOne will terminate its unmetered internet service with telco Quip in September, after admitting that high demand has made the service too costly to run.
The ISP, which launched the offering at the end of March, will instead offer its customers a new service based on BT's wholesale Surftime package.
LineOne said the demand and usage of its unmetered offering was much higher than it had expected. So while customers needed to pay just a fixed fee of £5 a month on voice calls, the increased demand meant that the company's costs spiralled.
"The actual time users spent online has been significantly higher than expected," said a spokesman. "LineOne, as good financial stewards, need to take control and will offer a service that appropriately meets the needs of our customers."
The LineOne/Quip service will be switched off on 30 September. Customers will be given a £20 credit on their Quip telephone account and can keep the phone adaptor purchased when they joined the service. From 1 September, customers will be offered a weekend and off-peak service based on BT's Surftime.
In a letter to customers, LineOne marketing manger Shelley Mackereth said: "The good news is that this will not affect you in the short term, so you do not have to do anything at the moment, just carry on using the free internet service as normal."
However, the tone among users talking on newsgroups today - such as alt.internet.provider.uk.free - was one of anger, with headings such as 'Cancel your Quip account' and 'Quip directors phone number...'. Other newsgroup users are already looking for an alternative ISP.
In May, vnunet.com reported that LineOne had stopped accepting new customers for its unmetered internet offering after users experienced difficulties connecting to the service. The company said it would invest in greater capacity to prevent further congestion.
LineOne's announcement is expected to be the first of many ISPs to have run into trouble with their unmetered offerings. A source close to the company said the announcement would lead to other ISPs "coming out in the open" and admitting their current unmetered models do not work.
Virgin Net announced on Friday that it is delaying its unmetered internet service offering until September. While the current trial costs users £15 a month, the pricing for the full commercial service is being kept under wraps.
Sarah Skinner, European internet analyst at Durlacher, said: "You can't offer a quality of service without generating a revenue. A lot of companies needed to jump in and offer low-cost services to customers, but as the market becomes more sophisticated, people will be prepared to pay that bit more for a quality of service. We will see a tiered approach, with the price level guaranteeing levels of quality."
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