RE: UKNM: big ISP news

[Sean Phelan]

>Craig Pickup wrote:

>I do not know if this particular model from the ISP side will be viable or not

>but I have heard of other ISPs in the near launch stage of offering free

>access and obtaining their revenue from a percentage of the telephone charges

>paid by those accessing. Even though it will be a standard local dial number

>the amount of revenue they can obtain from the telco will be sufficient income

>to support them.


Paul Durrant replied:

>Surely this model is going nowhere.  In Europe we already pay too much

>for local Internet access in phone charges.  If anything deregulation /

>competition means local call costs should come down. (or am I just over

>optimistic) Doesn't leave much icing on the cake for the ISP - and I

>understand its very thin as it is


Sadly, this is not the case.  Deregulation/competition leads to lower

long distance charges and MUCH lower international charges, but the

combination of these lead to increased local charges ("tariff rebalancing").


When OFTEL was regulating the BT/C&W duopoly, it stipulated that BT's prices

should fall by a fixed percentage a year, after allowing for inflation, the

so-called "RPI-X" formula. BT had to drop its international charges

considerably, and nationally it was only really competing with Mercury for

long distance big-business accounts.  So it was free to raise local call

charges and still stay within the RPI-X formula.


The cost of local infrastructure is so high that it really isn't worthwhile

for a new entrant to offer cheaper local calls.  Hence the very marginal

improvements we see from the cable operators.  Much better to find a way

of using BT's existing local infrastructure without having to pay the retail

rate.


This would actually be technically quite straightforward for a reasonably

visionary ISP - define yourself as a PTO, get a network access code

(like, eg. 1488 for swiftcall or 132 for C&W) and route all the resulting

calls into your routers/modem pool/whatever.  Result: no local call charges.


BT would immediately cry foul, and in any case there are probably some other

restrictions that stop you doing this (though last time I looked at the

standard PTO licence it seemed very open about such things). Oftel's reaction

would be interesting.



It is possible that one or more ISPs have already tried this - Pipex was

toying with being a PTO before it was sold to UUnet, and Demon may have

actually become one - it's easy to get the full list of PTOs from Oftel.


But, bearing in mind that ISPs generate more revenue for telcos than they

do for themselves (at least on their dial-up services to heavy users) it

seems logical that they should be acquired by telcos.  At which point the

incentive to lower telco charges goes away.


Cheers

Sean



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Sean Phelan

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