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Euro Net targets phone fees
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November 3, 1999: 7:09 a.m. ET
Pressure builds on telecoms to scrap per-minute local phone charges
By Staff Writer Douglas Herbert
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LONDON (CNNfn) - Europe's dominant phone carriers face growing pressure to scrap the per-minute local phone charges that pose one of the biggest roadblocks to wider Internet use in the region.
As more and more European Internet service providers hammer out special rate deals with their own phone carriers, bypassing the big telecoms altogether, consumers say they see signs of the flat-rate structure that has powered the Web boom in the United States.
Almost none of the existing ISPs offer the kind of unlimited, flat-fee Web access that has lured millions of surfers to cyberspace in the United States.
Yet the fact that Europe is slowly adopting a more liberal phone-rate system is encouraging to those whose calls for more open rate structures have fallen on deaf ears.
British Telecom: A giant in jeopardy?
"In the early days, when we spoke to people about (flat rates) they just dismissed it as a pipe dream," said Erol Ziya, a London café owner who founded the grass-roots Campaign for Unmetered Telecommunications, or CUT, 14 months ago.
"When we started the campaign," Ziya told CNNfn this week, "we always told people it's not a question of if, but of when the transition to flat rates will happen. Personally, I'm very surprised at how quickly it's come about."
A groundbreaking meeting with BT
Today, as Ziya basks in his newfound prominence, he counts among his supporters AOL, the world's largest Internet service provider, and The Times, the London newspaper of the British political establishment.
And he counts among his avid listeners people like John Strutt, the head of pricing and design policy at British Telecommunications (BT), a company that previously ignored Ziya's group.
"He was very professional and not condescending at all," Ziya said of a recent meeting with Strutt. "For the first nine months of our campaign BT was assiduously ignoring us. Now, they've been forced out of the woodwork."
The fact that people like Ziya and Strutt are talking -- if not finding common ground -- shows the importance Britain has attached to fostering Internet growth since Prime Minister Tony Blair's public pledge this summer to make the U.K. "the best place to do business electronically by 2002."
Toward this end, Blair recently appointed the country's first "e-commerce minister," Patricia Hewitt, ensuring a prominent pulpit for the dot-com debate at the cabinet level.
Local phone fees hinder Web growth
In Germany, where the dominant carrier, Deutsche Telekom (FDTE), adamantly opposes flat rates, the ISP market remains rigid and stratified. But that may change soon, analysts say, as big rivals such as Mannesmann (MMV) encroach on Telekom's market share and carve out sizable Internet niches of their own.
Meanwhile, France's Wanadoo, with 950,000 subscribers, last week unveiled a new pricing structure that allows users to pay as little as 39 francs ($6.22) for three hours of Internet call-up access a month, or 159 francs for up to 18 hours a month. Subscribers to the plan also have access to Wanadoo's 24-hour customer hotline.
Hewitt's packed appointment calendar
In Britain, however, officials are seeking a broader solution to the access problem than the patchwork approach so far.
Hewitt has met with a wide array of pro-Internet activists, including software titan Bill Gates, the country's telecom regulator David Edmonds, and Ziya.
She and regulators from the Office of Telecommunications (Oftel), the telecom watchdog agency, plan to meet with officials of British Telecommunications in a few of weeks and are expected to serve BT with an ultimatum to ease its pricing structure, according to a recent report in the Wall Street Journal.
Oftel and Hewitt's office declined to confirm the report this week, other than to say they are in ongoing discussions with BT. Regulators are expected to provide further details of the talks later this week and could announce a breakthrough at that time, a person familiar with the situation told CNNfn.
The message the e-commerce minister will bring to the meeting with BT is simple: By forcing users to pay for each minute of local calling time, Britain and the rest of Europe are discouraging people from logging on when they want and for as long as they want. (In Britain, a Web user who averages 10 hours per week online can end up paying 1,300 pounds ($2,130) a year in local phone connection fees, analysts say.)
Still no escaping BT's dominance
If the trend continues, officials warn, Britain could lose out to the United States early in the next century in the race to capture the burgeoning market for electronic business.
"Britain is at a stage in its history where it can be thrust into the forefront of the e-commerce industry," Marc Radvanyi, Hewitt's spokesman, told CNNfn.com this week. Or, he implies, it could go the other way.
"The key thing here is that the minister wants to see a range of tariffs for Internet users, to get the best deal for consumers," Radvanyi added. "The endgame is that there should be cheaper access for people to be encouraged to use e-commerce."
The problem Hewitt and other officials now face is reconciling consumer demands for more open Net access with the concerns of telephone companies, which argue their networks would be overwhelmed by the flood of Internet surfers a flat fee may invite.
Radvanyi also said British officials want to avoid having people who don't use the Internet, or who use it rarely, subsidizing those who do. For him and others, "finding the best deal for the consumer" means taking into consideration the fact that a large segment of the population -- mostly poorer Britons -- don't surf the Web and don't even have the equipment necessary to do so.
At the same time, companies such as BT, Deutsche Telekom, and France Telecom are loath to give up the hefty profits generated by routing Internet traffic over their domestic networks. The final leg of this traffic, from the local network to the ISP, often is picked up by a terminating phone carrier, such as Britain's Energis, which gives the ISP a kickback fee in exchange for the extra Web traffic the provider generates.
This arrangement has spawned many of Britain's nominally "free" ISP's, which strip out subscription charges and set-up costs but still require the user to pay for the dial-up phone call. That's why, critics say, many of these services are free in name only.
Barry Johnson, a spokesman for Oftel, envisions a system under which Internet users would be able to choose from a menu of fees custom-tailored to their personal surfing habits.
"Unmetered (phone) access is not right for all consumers; it is right for heavy consumers of the Internet," Johnson said. "As the technology has evolved, our goal has always been to get the best variety of tariffs."
ISP's forging ahead
The ISPs themselves haven't been waiting for BT to proceed aggressively with its own specially tailored tariff plans.
AOL U.K., the number-two ISP in Britain after Dixon's Freeserve, with 600,000 subscribers, already offers a penny-per-minute deal to customers of its premium online service. Freeserve, meanwhile, gives its most active Internet users credit toward free phone calls.
Other companies such as Claranet, which has 350,000 subscribers in Britain and France, offers three "Freetime" plans under which customers dial a special prefix before the telephone number, which switches them to the company's own Canadian cable operator.
This arrangement has enabled Claranet to comfortably straddle the fence between per-minute pricing and the unlimited use flat-fee structure that prevails in the United States.
"The system right now is working pretty well for us," said Nick Wells, Claranet's marketing director. "We're developing our own services internally. These kinds of Freetime packages are the sort of things people have wanted."
But for Johnson, at Oftel, such developments are a harbinger of a much more liberal Internet-access environment to come. "We are going to be moving very, very quickly now over the coming months," he said. 
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