Decreasing costs and increasing quality: the enigma of Internet access

Citation

Foley, P. (2000), "Decreasing costs and increasing quality: the enigma of Internet access", European Business Review, Vol. 12 No. 5. https://doi.org/10.1108/ebr.2000.05412eag.001

Decreasing costs and increasing quality: the enigma of Internet access

Decreasing costs and increasing quality: the enigma of Internet access

In 1995, when I first accessed the Internet from home, I had to pay a one-off connection fee of £99.95 and £9.95 a month plus usage costs for access to items such as British Rail's timetable (15 pence per enquiry) and the BT Teledirectory (12 pence per enquiry). For this price I also had to suffer the inconvenience of someone visiting my home to install a FastConnect 14.4kbits/second modem and software. Quaint.

This editorial considers changes in the dial-up (PSTN – public switched telephony service) Internet access market and it investigates how UK prices compare with other countries. The emphasis is primarily on the UK but similar changes and improvements in services are occurring throughout the world.

The development of subscription-free Internet access, primarily exploited by Freeserve, radically altered the UK Internet Service Provider (ISP) market. Freeserve was launched on 22 September 1998. Less than a year later with 1.32 million active users, on 2 August 1999, its shares were launched on the London Stock Exchange.

The subscription-free ISP business model was not new. Interconnect revenue sharing (which enabled ISPs to receive a proportion of the call revenue generated by subscribers) had been one component of most ISPs' business models for several years. The "new" subscription-free ISP business model was restructured to focus on user minutes and page impressions rather than subscriber numbers.

The recent development of fully unmetered access is already taxing marketing managers at ISPs. Business models are being redefined. Page impressions and advertising income will become more important and ISPs will probably need to obtain and maintain a critical mass of users.

It will be interesting to see how many of the estimated 400 or more ISPs in the UK survive and what new revenue generation methods or value added services will be developed to differentiate services in a "free" market. Many ISPs have realised that new methods need to be developed to retain users in a fickle consumer market. Several are now creating barriers to exit by requiring users to sign up to long-term contracts for ancillary utilities such as telephone services.

Most providers expect the emerging "free" market to follow the US model where unmetered access is available, but with capacity restricted and placed into different price bands. Ordinary 56kbits/second modems might have free access while cable modems, ADSL connections or other higher speed access will exert a premium and require payment.

Two recent decisions by Oftel will lead to increased competition in the "free" ISP and broadband network during the next 12 months.

In May 2000 Oftel required BT to provide the necessary services to enable other operators to supply unmetered Internet access over BT's local network. MCI Worldcom which requested BT to supply it with a wholesale unmetered Internet access service from the customer's home prompted the decision. At first BT refused, and was only prepared to offer a metered wholesale service. Oftel's decision meant that from 1 June 2000 other operators were more effectively able to provide unmetered Internet access to consumers in competition to BT's own unmetered Internet access retail product – Surftime.

The second Oftel decision, in November 1999, enabled telecoms companies to have increased access to BT's local telephone lines to provide new high-speed information services (generally known as DSL – Digital Subscriber Line) with bandwidths usually greater than 384kbits/second. This decision, known as unbundling the local loop (the last mile of copper between the user and their exchange), obliges BT to provide individual telephone lines to other operators. It also allows the co-location of equipment by operators in BT's local serving exchange and requires BT to provide the necessary support to enable operators to deliver their service direct to customers using BT's lines.

LLU (local loop unbundling) trials involving 14 other operators commenced in April 2000 in Battersea, Belfast, Edinburgh and Leeds. The full commercial launch of LLU services is scheduled for July 2001 at the latest.

BT is currently rolling out ADSL services itself. Information about the availability of these services is available on BT's Web site by simply typing in your UK STD phone number.

The capability for more free access and better quality services has now been established. The way in which ISPs choose to utilise this capacity and how much they will charge for different access methods will only become clear in the coming months. However, perhaps contrary to conventional wisdom, two surveys published this spring by Oftel and OECD identified the UK as one of the cheapest places in the world for Internet access.

The OECD carries out annual reviews of telephony charges and telecommunications issues in its Communications Outlook publications. Figure 1 highlights their finding that UK is the most competitive places in the world for Internet access at off peak times. OECD research, examining costs for 40 hours off-peak access, reveals that the UK is cheaper than all the other 29 countries examined. These results were largely confirmed by a complementary benchmarking study undertaken by Oftel in February 2000.

Figure 1 Internet access basket for 40 hours at off-peak times using discounted PSTN rates in March 2000

Oftel has also undertaken an international benchmarking study of DSL services. This exercise is complex due to the range of bandwidths provided (between 256k and 2,000kbits/second and differences in upstream and downstream bandwidths) and the fact that at the time of the survey most UK offers to residential and business users were provided on a trial basis. Figure 2 shows the cost and speed of residential DSL services. This study revealed that prices in the UK were comparable to those elsewhere. Two UK providers were amongst the top six in the survey of 20 providers for residential consumers in the UK, France, Germany and the USA.

Figure 2 Residential DSL costs and downstream speed in March 2000

In this rapidly changing market it is just possible that in future years there might be a collectors' market for ISP connection documents and CDs and I can recoup some of the seemingly huge connection fee I incurred in 1995.

Web sites

The International Electronic Commerce Research Centre has recently revised and relocated its Web pages. They are now available at www.iecrc.org

Listed in Table I is a selective review of Web sites that provide details about leading UK ISPs and reports highlighted in this paper. Dynamic links to these pages can be found at the http://www.iecrc.org/ebr11.html

Paul FoleyDirector of the International Electronic Commerce Research Centre,De Montfort University, Leicester and Visiting Professor, School of Accounting and Information Systems, University of South Australiae-mail: pdf@dmu.ac.uk