Unlimited-broadband offers to go 'within a year'

Time is running out for so-called "unlimited broadband" packages, according to analysts and internet service providers.

For some time, many ISPs have been offering users what they call unlimited broadband, although it almost always comes with some kind of "fair usage" cap on downloads. PlusNet has been one of the few providers to buck this trend — preferring instead to offer packages based on fixed download caps — and is now warning that the emergence of IP television and the BBC's iPlayer will make it impossible for its rivals to continue marketing their packages as "unlimited".

"2008 will be the year of IPTV," said Neil Armstrong, PlusNet's product and marketing director, on Thursday. Speaking to ZDNet.co.uk, Armstrong said that the iPlayer service had "gone from zero percent of [UK traffic] to five percent in two months", and this explosion in high-bandwidth usage meant ISPs would have to either explicitly charge for the actual amount of data used by customers or operate at a loss.

The popular video site YouTube is also believed to provide around 10 percent of all traffic on the internet — and if it goes "high-quality", as it is expected to do soon, this figure is likely to go up.

"Where it's going to be a big problem is ISPs selling unlimited broadband with a 'fair-use' policy," said Armstrong. "[Users on such packages will] hit that figure and [their] line will slow down, and [they] are going to get a nasty surprise. This is happening right now."

Asked whether this meant those who consider themselves to be "light users" of the internet but now use services such as iPlayer will have to pay more, Armstrong agreed. "Somebody somewhere is going to have to pay, which is why we are very clear about what our products [involve]," he said. "It's not just a single-price, all-you-can-eat market any more." He said he hoped there would be no "unlimited broadband" offers being advertised in a year's time, because they are, in his view, "dishonest".

Armstrong added that, while business customers "don't fall for advertising as easily" as consumers might, the increasing prevalence of home-working using home broadband connections meant a change in tariffing could affect some businesses. He also said that increasing consolidation in the broadband market, together with the massive increase in data traffic brought about by consumer video services, would force many small ISPs to go business-only or be swallowed up by larger rivals.

Michael Philpott, principal analyst at Ovum, agreed with PlusNet's views on "unlimited broadband". "[Such offers are likely to disappear] quite soon actually — I would say within 12 months, simply because you hear it more and more," he told ZDNet.co.uk on Friday. "At conferences where the likes of Tiscali and BT are present, you hear them say these things — 'We must move to a new tariffing scheme' — and that tells me they're working hard on this. The challenge for them is doing it in a way that keeps them competitive — there is a first-mover problem."

Philpott said business models for ISPs would have to change as a result of increasing traffic. "It is up to you as an ISP to make the business case work by designing your network around that [leased or owned] pipe," he said. "It only makes sense if you can split the pipe across as many customers as you possibly can — if end customers increase in terms of bandwidth, you can fit less customers in a pipe and you are therefore paying more per customer. If you're charging £15 [per month] fixed then eventually your costs outweigh [your income]."

Those operators who owned their own network, rather than leasing connectivity from BT Wholesale, would find themselves in the same boat, Philpott suggested. "You're buying Cisco or Juniper routers or whatever, which have a certain amount of capacity, so you are having to purchase more and more hardware to be able to keep control of your customers," he said.

"You will start to see new tariff schemes come out onto the market," said Philpott. "The market will try to not look like they're punishing people — they will try to spin it as 'You want to be a homeworker, upgrade to this package and pay extra'. If you're not willing to pay, then you unfortunately get put to the bottom of the pile. ISPs are heading towards segmenting their customers."

A spokesperson for Orange, one of the UK broadband providers that offers "unlimited broadband", told ZDNet.co.uk on Friday that "consumers are becoming increasingly sophisticated in their broadband use and multimedia services are driving increased demand and consumption".

"Orange continually reviews and refreshes its packages to meet consumer needs," the spokesperson added.