UPDATE: Huge phone bill blamed for breathe's collapse

Unsustainable nature of BT's unmetered offering blamed for ISP's last breath

The collapse of ISP breathe is due to the huge subsidy it paid to BT for its unmetered service, according to analysts Monday.

Breathe was keen to be a major player in the mobile Internet market but also launched a fixed line unmetered service in April. It was one of the first ISPs to go live with such a service, seeing it as a means to supplement its broadband mobile plans.

Last week Breathe admitted it could no longer sustain the service and closed down, refusing to reimburse angry users the £50 subscription fee.

Pricewaterhousecooper (PwC) -- appointed as the ISP's administrator on Friday -- claims the ISP collapsed due to the current antidot-com climate. "The company has experienced financial difficulties as it has been unable to attract further investment in the current trading climate for dot-coms," a statement reads.

Analyst with research firm Jupiter Dan Stevenson believes the real reason breathe has gone under is down to the subsidies it had to shell out to BT.

"It was having to subsidise the service, paying BT on a metered basis," he says. He believes breathe should not have been so keen to jump on the unmetered bandwagon. "It should have waited until April when Friaco is introduced. Then ISPs should be able to break even or even make money," he says.

It is rumoured the ISP has run up debts of £50m and PwC is busy looking for a buyer for the company. It will continue to trade until a buyer is found and no job losses are predicted immediately. Whether it will relaunch an unmetered service based on Friaco is unclear. "The administrator will be looking at the big picture and will then make a decision on where the company is going," says a spokeswoman for PwC.

Stevenson believes the future of unmetered will be in the hands of big players with little room for smaller ISPs like breathe. "It lies with the telcos. To survive in the ISP market you have to be a telco or closely affiliated to one," he says. Even AOL may have to rethink its strategy, he believes. "One has to speculate what AOL is going to do. One wonders how they will survive," he says.

How can you get online for less? Find out in the Unmetered Access Special.

Have your say instantly, and see what others have said. Click on the TalkBack button and go to the ZDNet News forum.

Let the editors know what you think in the Mailroom. And read other letters.