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Subject: RE: UKNM: big ISP news
From: Sean Phelan
Date: Mon, 8 Jun 1998 10:46:57 +0100

>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

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.


Sean Phelan seanatmultimap [dot] com http://www.multimap.com
phone (within UK): 0171 433 0460 fax (UK): 0171 209 5194
phone (Int'l): +44 171 433 0460 fax: +44 171 209 5194

  RE: UKNM: big ISP news, Paul Durrant

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