Analysis: Broadband to pick up the pieces of unmetered?

While the launch of numerous unmetered dial-up services finally proved that there is a huge demand for flat-rate Internet services, the fact that many of the free ones have floundered is frustrating consumers hungry to get online. Is the future now broadband as consumers realise that there really is no such thing as a free lunch?

With narrowband unmetered access in disarray, as first LineOne and now CallNet cancel their services and many of the other providers struggle to cope with demand, broadband will become an increasingly attractive option for bandwidth-hungry surfers.

Telewest has taken the initiative in making its broadband offering appeal to a more mass market by cutting the cost of its blueyonder service from £50 a month to £33.

However an Oftel survey published this week suggests broadband providers have some way to go to convince users to make the transition from narrowband to broadband. The study reveals that the average £50 price tag for ADSL services is far too high for most. Instead customers would be prepared to pay no more than an average of £13 a month.

According to Telewest's head of marketing for Internet services Chad Raube, its new improved £33 service is plenty cheap enough. "From the consumers we've interviewed, when made aware of the benefits of an always on, speedy service, we think that a £33 price point is great value," he says. He claims that since cutting the price, interest in the service has "increased very significantly".

Unfortunately users won't be made aware of the advantages of broadband without agreeing to pay the higher price tag, putting operators in something of a Catch 22 situation. While operators remain convinced that consumers will love broadband once they see the benefits of always on, speedy Internet access -- customers to blueyonder can't live without it, according to Raube -- analysts are not so sure people will be prepared to hand over £50 a month to find out.

"Broadband can't be sold on speed or functionality. The only thing people understand is that it is flat rate. It is a straight trade-off with telephone bills," says GartnerGroup analyst Adam Daum.

Broadband may be helped along the way by the demise of many of the narrowband flat rate services. Although Raube denies that the decision to cut the cost of blueyonder was a direct response to the unmetered debacle, he thinks many disgruntled narrowband customers will swap to broadband. "We anticipate the majority will migrate from dial-up access and the new price will make it more accessible. The fact that it is truly always on is a key difference from dial-up," he says.

According to Oftel's research understanding among consumers over what broadband actually delivers is very low. In fact many of the subscribers to narrowband flat rate access services were treating the offers as if they were broadband and staying online for up to 24 hours a day. This was causing jammed lines leading one unmetered ISP -- breathe -- to throw 500 "bandwidth hogs" off its service.

While the always on aspect of broadband service remains its most attractive quality to those marketing it, price remains the key factor for consumers according to Daum. His research bears out that of Oftel. "To achieve mass market adoption prices will have to fall to between £10 and £15," he says.

Daum remains pessimistic about the immediate future of broadband. "With current pricing strategies it is difficult to be anything else but pessimistic," he says. "The only way things could change is if ADSL fell through the floor."

According to Daum there are two factors determining whether this will happen -- the most important being the increased competition created when BT finally releases its stranglehold on the local loop. The second will lie in the fight to deliver broadband services through the TV -- currently only Kingston offers this.

Whatever the outcome, BTopenworld has no current plans to cut prices in line with Telewest. "We still intend to launch at £39.99 and there is no intention to cut that," a BT spokesman says. The delayed service is due to launch in the autumn.

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