Unmetered access to shake up free ISPs

BT's new offer of flat-rate Internet calls could leave free ISPs searching for a new source of revenue

Internet service provider Freeserve's (quote: FRE ) price fell sharply Tuesday in the light of BT's decision to offer unmetered access in the UK.

The move to introduce a flat-rate charge for Internet calls could mean trouble for Britain's most significant foray into the Internet, namely free ISPs, of which Freeserve is the largest. Such companies charge no subscription fee, instead taking a cut of local-rate telephone call charges. If such service providers chose to offer BT's flat-rate call plan, they would no longer be able to share telephone revenue and would have to find a new source of income.

Of course, it remains to be seen how popular BT's unmetered access package will be with consumers; the most comprehensive option, at £34.99, has been called overpriced. But the announcement of the unmetered option has confirmed the view of many pundits that a US-style flat-rate pricing structure for local calls is inevitable here.

Many ISPs will choose to revert to subscription-based services, Durlacher analyst Nick Gibson believes. "The market began as subscription and we believe it is moving back to a subscription model," he said. BT, on the other hand, believes ISPs will be able to survive on revenue from e-commerce and advertising.

Freeserve is confident is will not be threatened by unmetered tariffs. "We revolutionised the ISP market and we believe we can survive," a Freeserve spokeswoman said. She was unable to confirm whether Freeserve will adopt the BT unmetered tariffs but said there were no plans to move to a subscription model. Freeserve announced in September that it was making more money from e-commerce and advertising than from call revenue.

The spokeswoman challenged BT's tariff, claiming it was not as good as the free Net time Freeserve offers. "We already have our own deal and it is better than BT's," she said. Freeserve users can earn up to 10 hours free Internet time per month by dialling 162 before voice calls.

A spokesman for screaming.net -- a free ISPs which offers free dial-up time on weekends and evenings -- is confident it will survive but is not so sure about Freeserve. "The effect on screaming.net will be minimal but I would be interested to hear what Freeserve make of it. It removes a key part of their revenue," he said.

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