Flat-rate access could help level steep climb to broadband summit

Analysts argue that regulators are damaging the potential broadband access market by forcing telecoms into offering connectivity at an unrealistic price

Bad news for cheap internet access advocates - some analysts believe prices in the European market are about to start to rise.

And, perhaps more worryingly for those who had been hoping for inexpensive, always-on connectivity, some are suggesting that they should rise.

According to an article this week in the Financial Times, executives at British internet service provider (ISP) Freeserve and Italian ISP Tiscali say they are looking at pricing. They both say they expect figures to move upwards now, rather than downwards, which has been the trend since public Net access was introduced in the last decade.

One may be tempted to dismiss such assertions when they are coming from the companies themselves - they would say that, wouldn't they?

But two analysts at the big US consultancy McKinsey believe prices should rise.

They argue in an article (located at: http://www.mckinseyquarterly.com/ab_g.asp?ar=1158 and also carried in the Wall Street Journal) that regulators are damaging the potential broadband access market by forcing cash-strapped telecoms companies into offering connectivity at an unrealistic price.

"So far, deregulation has gone only half the distance - having shorn the incumbents of their total market control, regulators must now approach pricing regulation to facilitate deployment of competing infrastructure," they say. "Policymakers and regulators must abandon their focus on continually pushing prices lower, at least in the short run."

Open out the market instead by doing three things, they say.

First, let telecoms companies charge higher prices for voice calls, to help increase their economic stability.

Then, strengthen the highly regulated European cable television industry, which has the potential to be a significant competitor through providing cable modem internet access.

Finally, make it much easier for providers of alternative access methods - land-based wireless, satellite, fibre networks - to offer connectivity.

Crucially, the authors are not saying that the more powerful incumbent providers - the former state telephone companies - should be free to raise prices and avoid regulation.

The article makes the point very clearly that, in many cases, the incumbents need to be more heavily regulated to force open access to their networks and exchanges.

But everyone needs to be able to charge more for services which, in the initial battle for market share, dropped and dropped across the US and Europe.

You may agree or disagree with this analysis but the reality is that broadband deployment in Europe has, for the most part, been an abject failure.

The methods taken to stimulate the market instead have left it comatose, even in large markets like Britain, where British Telecom retains a vice-like grip.

Germany is often pointed to as a role model, yet only a tiny fraction of the massive German market has been unbundled and ramped up.

Look at the broadband debates in those countries and one finds they are very like our own bitter battles, with the same arguments, defences and general lack of progress.

This sometimes gets forgotten in the verbal skirmishes, when some proponents of broadband mistakenly assume that other European countries are far, far ahead in deployment.

In contrast to our virtually lifeless market that is true but, in an overall context, we're all stuck in a big broadband rut.

So, for that matter, is most of the US - which also is easily forgotten.

Few areas in the US have high-speed Net access, mostly large urban centres, and the quality of service is often very poor, especially for digital subscriber line (DSL), a technology that enables ordinary copper phone lines to bring in high-speed internet access.

And prices are rising there, too - beginning to push $50 to $60 per month, with further increases proposed in many markets.

Forgotten in all the arguments for broadband provision in the Republic is that we do not even have unmetered plain old low-band internet access, where Net users can pay a flat rate for always-on connectivity.

For many - consumers and small to medium-sized businesses that don't need a big "pipe" for sending data - simple unmetered access would transform their use of the Net.

An interesting fact that emerges in the FT article noted above is that 40 per cent of the British internet user market pay for unmetered access. Forty per cent! That's a significant slice of the total market and demonstrates strong demand for such an offering.

British regulator Oftel believes this is an important service (indeed, it is the norm in the US) and appears ready to force BT to change its wholesale pricing structures to make it more attractive for competitor ISPs to offer always- on access to consumers as well.

The Republic is sorely in need of a similar offering and regulatory approach. Perhaps nothing would better address our market's shortcomings in the immediate term than to introduce a flat-rate offering (once we were very near being the first European state to offer unmetered access but, alas, Eircom lost its nerve and backed away, only weeks short of introducing it).

But pushing for unmetered access is slightly tricky. Proponents, which include many senior technology industry figures here, are cautious about having the Government and telecoms companies seize on the notion that a flat-rate offering could be a replacement for driving broadband access forward.

However, I think flat-rate access should be an immediate priority for two reasons.

One, it at least begins to address the ridiculous situation we have, where staying online for any length of time begins to inflate one's phone bills to daunting levels. Offer flat-rate access and people's ability to make full use of the Net will begin to soar.

Introducing flat-rate access also helps create the consumer and small business broadband market that Eircom keeps arguing isn't there.

Flat-rate take-up in Britain surely indicates a potential interest in higher-priced, always-on broadband services - if only they were available.

And for many people, flat-rate access at a reasonable price for provider and user will be perfectly satisfactory, at least in the short to medium term. Supplying flat-rate access to the market is a positive step that could happen immediately and would bring some air back into the current stifling situation.