Broadband Britain moving to mobile phone pricing

BT has made big changes to the way it sells ADSL to ISPs, and this is stimulating the creation of pay-as-you-go and bandwidth-on-demand broadband

Britain's broadband providers are moving away from the fixed-price, high-speed services that have been available for the last few years, and towards a 'pay as you go' market.

Until now, metered broadband has been a niche product that was only offered by a couple of players. But BT is radically changing the way that it sells wholesale broadband to ISPs, making it much easier for ISPs to create products where consumers are billed for the amount of bandwidth they consume.

This is expected to prompt a rush of products launches over the next few months, including new entry-level services, as ISPs try and turn broadband into a more mass-market product.

Two ISPs, PlusNet and Eclipse Internet, announced metered products this week.

PlusNet's Broadband Home service lets customers download up to one gigabyte of data for £14.99 per month. Every additional gigabyte of data downloaded will cost an extra £1.50. Uncapped broadband products cost between £20 and £30 per month at present, so this package could appeal to users who want a fast connection that doesn't tie up their phone line, but who aren't likely to be online for several hours a day.

Eclipse has launched a product called FLEX broadband that will let users buy a broadband connection of a certain speed and then raise this speed for a short time when needed. For example, a customer with a 256Kbps link will be able to quadruple this speed for one hour at a cost of 14p. This could be useful when a user needs to access a large patch or the latest Windows Update.

Many more ISPs are understood to be developing similar products. BT claims that its new capacity and usage charging is giving ISPs "flexibility to innovate and differentiate" themselves, making them more attractive to potential customers.

"The early days of broadband were about heavy users. Today it's a maturing market, so some people who are considering broadband won't want to be online for four hours a day, but still want its speed and flexibility. Now ISPs can create a market for these people," said a BT spokesman.

According to one ISP, broadband pricing will soon resemble today's mobile phone packages, with users paying a small monthly fee and then being billed for every connection.

"We're seeing the start of that now," said Andy Taylor, portfolio manager at Nildram. "In the next six or seven months I think we'll see a lot of pay-as-you-go products launched."

However, Taylor explained that ISPs are unlikely to end up paying any less for their broadband as a result of BT's price changes.

"If ISPs want to offer lower-priced services to end-users then they'll need to reduce costs behind the scenes," said Taylor.

Despite this, there's still a decent chance that the cost of broadband could fall. BT's flexibility will make it easier for ISPs to package and sell their connectivity more efficiently.

"It will be easier for ISPs to create a price war," said Taylor.

AOL is already using BT's new capacity charging system to provide a slower and slightly cheaper 256Kbps service called AOL Broadband Silver. However, the consumer ISP is lukewarm about the merits of pay-as-you-go pricing, as it thinks consumers will be turned off by unpredictable bills as they do more online.

"The boost in services such as video-on-demand, interactive content and voice-over-IP means that people are spending more time online," said Jonathan Lambeth, AOL UK's director of communications.