New unmetered price war on the way - analysts

Analysts agree Wednesday that AOL's "Flat Rate" service is the first shot in a new battle over unmetered Internet access. AOL, the UK's second biggest ISP announced Tuesday unmetered access to the Internet for £14.99 per month. It previously refused to make the move to flat rate, arguing it was waiting until BT made Fixed Rate Internet Access Call Origination (Friaco) available. Without Friaco, ISPs had to pay for each minute of Internet use by their members, even if the members were only charged a fixed fee. Now AOL says Friaco is available, opening the floodgates to a new generation of flat rate ISP packages that, theoretically, will be founded on a sustainable business model. According to James Eibisch, research manager at IDC, AOL is making a sensible move. "Unlike previous companies who failed, AOL has waited for a stable wholesale offering to be available to it," he said. "It's easier for [AOL] to make a success of a flat rate package too, because it doesn't need to spend money building a brand." But Eibisch believes pricing confusion may be on the way as competing ISPs attempt to undercut AOL's offering. "Now that Friaco is available, other companies will soon offer their own flat rate services. I expect that we'll see some type of price war in the short-term," he said. However, he isn't convinced a price war would be in the consumer's interest. "Taking a long-term view, price wars don't really benefit consumers... Users who are drawn to cheaper unmetered offerings might find themselves with a shoddy service, as many users of unmetered have already found out." he said. "People want an always-on service that they can trust, even if they have to pay more than for a service that is cheaper but poorer." In the long term, Eibisch expects the unmetered market will become tiered, with some users willing to pay more for a premium service, and others opting for much cheaper options. But while AOL congratulates itself on its timing and brand awareness, smaller ISPs worry they will be forced to cut prices at the cost of quality service. "Look at the PC market. Companies promised free support, but margins were cut drastically until it became extremely hard for users to get the help they needed," said Bob McNinch, chief operating officer of Direct Connection, a UK ISP. "If that happens to ISPs, then it eats away at the advantages of unmetered access." Alan Stevens, head of digital services at the Consumer Association, was previously critical of companies who offered unlimited Internet access in the past, only to later pull back. He supports unlimited Internet access, but only if it can deliver. "It is one thing to promise a service, but another thing for it to work. It's good news if a company can manage to make unmetered work, as Internet users shouldn't have to worry about their phone bills," Stevens said. Take me to the Unmetered Access Special News Comment
Unmetered incompetence
The best you can say for AltaVista is that it may honestly have thought it could provide a profitable unmetered offering. Most of its rivals believe that if it did, it was incompetent and Guy Kewney tends to agree. "The numbers involved are complicated, and it may be that they were simply unable to add them up," said one rival yesterday. To have your say online click on the TalkBack button and go to the ZDNet News forum. What do you think? Tell the Mailroom. And read what others have said.