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Free model is not sustainable - experts agree

When is free not free? Observers and analysts agree it is when you have to pay a price, and we're not just talking cash...
Written by Jane Wakefield, Contributor

Internet service providers are putting themselves up for ransom by jumping on the free Internet bandwagon, according to secretary general of ISPA, Nicholas Lansman.

Lansman's warning comes amid a flurry of deals kickstarted by search giant AltaVista last week. AltaVista, cable company ntl and UK ISP breathe.net are all offering unlimited Internet calls either completely free or for a one-off initial payment of between £30 and £50. In response, Freeserve and LineOne have been forced to offer their own cheap unmetered services.

Lansman believes a scratch beneath the "marketing and hype" of the freebie market reveals few benefits for either ISPs or consumers. "It is a very serious problem. Some peoples' fingers will be burnt," he said. Small ISPs are at risk of going out of business because they cannot afford to subsidise such services, and Lansman warns consumers that in the long term, they may pay an unacceptable price. "These companies may defeat themselves by being too popular and then the quality of service goes down," he said.

IDC analyst James Eibisch does not believe consumers should rely on the deals coming from AltaVista and breathe.net. He believes there is no room for altruism in the online game. "What these companies who are offering free or very, very cheap deals are doing is buying market share in the short term," he said, asserting that consumers who are loyal in the narrowband era will probably remain loyal as broadband takes off.

Eibisch believes that the models being adopted this week could change quite rapidly as broadband rolls out.

Jupiter analyst Noah Yasskin goes further, suggesting the the free model is not sustainable and that those adopting it are taking a massive gamble. "The UK market is not yet capable of financing such completely free Interent access players on advertising and commerce revenues alone," he said. "Subsidising telephone charges will become an expensive marketing strategy for free access players," he warned.

AltaVista -- hoping to attract 0.5 million users within six months -- admits its one-off payment model may be only a short-term option. "The world is moving rapidly to always-on, real-time access, and it is impossible to predict what will happen," claimed marketing manager, Vesey Crichton.

AOL is one of the few UK ISPs holding out against the clamour for free Internet time. "We will offer our users unmetered only when it can be simple, cost-effective and robust," said an AOL spokesman. He did not believe that will be possible until BT offers a viable wholesale unmetered service. "BT lies at the heart of the debate, sitting in the middle while ISPs take the financial risks. It must not be allowed to get away with it."

Free and unmetered internet access has been on the agenda for some time -- right now the battle is on. Go to AnchorDesk UK to get the news comment from Tony Westbrook.

Tony Westbrook advises BT to 'Free the local loop' at AnchorDesk UK. Go and read the news comment there.

Find out more about free Internet access in our Unmetered Access Guide.

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