Internet price war ahead as AltaVista arrives

A full-scale UK Internet price war is imminent, say observers, in the wake of search giant AltaVista's offering of unlimited time online for £10 a year.

AltaVista's free ISP, which will be available within the next three months, will charge a yearly fee of around £10 with an initial payment of between £30 and £50. The company is hoping to attract one million users within the first year.

Vesey Crichton, AltaVista's marketing director, believes the service will stir up trouble for all the majors, including Freeserve. "The forward thinkers are with the free providers and I expect a good proportion of them will want to change to our service," he said.

Durlacher analyst Nick Gibson believes AltaVista's bold move is the first of many to come. "This is the beginning of a substantial call charge price war," he said. IDC analyst James Eibisch agrees, and predicts one of the UK's big ISPs will step up to the challenge from across the pond. "There will be a provider that comes out with the same or better service in order to compete with AltaVista," he said.

The conversion of the UK Internet market from pay-per-minute to monthly subscription has become unstoppable in recent months. BT (quote: BT) is currently battling out the details of its unmetered service -- Surftime -- with ISPs and other operators. It is expected BT will lower the £34.99 price tag before a (delayed) summer launch.

Meanwhile, maverick operators such as CallNet 0800 and X-Stream are beginning to take a gamble on completely free access -- CallNet already offers a nationwide service, but was hampered by over-subscription in the first few weeks. Crichton is determined not to make the same mistakes with AltaVista. "We want to do it in a controlled way," he said. As a result, AltaVista will limit the offer to half a million subscribers in the first six months.

However careful its rollout plans are, Durlacher's Gibson is not convinced AltaVista, or any other player for that matter, will sustain the model. "Broadband -- with unmetered pricing as standard -- is just around the corner," he said. "The higher value customers will migrate to broadband over the next 12 to 18 months, leaving the 'free' players competing for scraps."

Surprisingly, AltaVista agrees. "It is impossible to predict what will happen in the future," said Crichton, admitting that AltaVista's new business model may well be short-term.

AltaVista is an American Web portal, making most of its money from its search engine business. According to Internet traffic measurement firm MMXI, it was number ten in the top ten global domains for January. It is majority owned by venture capitalist firm CMGI.

You've read the news of the AltaVista revelations now read the comment from AnchorDesk UK with Tony Westbrook.

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