CALL CHARGES - Hanging on the telephone

We all know there's no such thing as a free lunch and the same applies when it comes to waiving the charges for internet usage.

Everybody knows the problem with the internet - there's not enoughlies when it comes to waiving the charges for internet usage. bandwidth and, in the UK at least, there is no real free local calls like in the US. It holds up the Net's growth, there's nothing you can do about it and it's extremely frustrating. So runs the received wisdom on the state of the Net and why it won't develop any further without a kick-start.

As usual, the US is different. Over there Net usage has grown to the extent where, for example, according to figures from America OnLine, the average AOL member spends 51 minutes per day online. This can often be attributed to the fact that, although the customers pay AOL (or CompuServe or whoever), they don't pay the Bell company. Interestingly, though, they do sometimes have system outages. And this is where the theory that we all want a free service starts to look distinctly wobbly.

Jonathan Bulkeley, UK general manager at AOL, doesn't believe local calling will become free on a national scale, although there are a handful of cable operators who offer it on their system. He is enthusiastic about anything that would increase internet usage, but has reservations about the pitfalls of overuse.

'You would get a spike and there would be problems,' he argues. 'ISP and telephone providers' systems weren't built to cope with that sort of spike.'

But Bulkeley believes it would be short-lived: 'If BT said tomorrow was the day we could all have free calls, we'd be over the moon for a couple of days, then we'd all go away and do something else.'

He's more clued up than most on this given that he comes from the US, and it's interesting to watch what has happened to the telecoms industry Stateside. There they already have free local calls but the availability isn't what it is over here. They tend to run from 11pm, so everyone waits until then before calling and, as a result, they are frequently faced with a 'circuit busy' signal.

'People adjust though. It's surprising what they'll accept if it's saving them money,' comments one US user. But to the UK mentality as it stands, an inability to telephone anywhere at all is more or less unacceptable.

UK ISP Demon faced just such a problem when one of its local cable suppliers offered flat-rate calls for any length of time, explains marketing communications manager James Gardiner.

Many cable companies appear to offer cheap calls after a certain time in the evening, but if you read the small print, they're generally for domestic line to domestic line calls only.

This time it was different. 'But we had no problem,' he says. 'We put in a telephone number for that service and told our customers there were only so many lines attached to it, after which they'd have to call our usual number and pay the same as everyone else. They were happy with that.' Eventually the telephone company had to pull out because it found that 5p a call didn't cover its costs.

It's all academic really - BT has recently gone on record as saying there is no desire within the organisation to make access free for local numbers because it isn't economically viable. The corporate line is that there would be system crashes, as has already happened in the US. Whether you accept that this is entirely due to the telephone structure or not is up to you.

What is certain is that the US pricing policy on internet access is different from that in the UK. Scratch a UK ISP and you'll find that its price policy is based on the fact that phone charges will make people get off the system at some stage. Offers of unlimited internet access at #10 a month would fade rapidly if the calls themselves were free, as recent upward moves in US pricing suggest.

This is for two reasons: one, people have to somehow be discouraged from logging on indefinitely. Some companies do deals for unlimited access and others - IT journalists for example - have sponsored Net accounts from ISPs; there would be no incentive for them to log off were they to have a second telephone line that would cost only a rental charge.

Equally as important, the money to pay for the new servers and modems to cope with the inevitable demand upsurge would have to come from somewhere.

Gardiner confirms that charges would have to change (as good a euphemism for 'sky-rocket' as you're likely to find) if incoming calls were charged so as not to put a barrier up for certain users. He suggests, however, that it would be relatively easy to achieve since BT and the cable providers themselves pay a flat rate for installing cable, putting lines up and maintaining the system: 'It costs X to dig the roads up and lay cables, and it's a flat rate, so why not have calls structured in that way?'

One thing is certain from BT's pronouncements - if cheaper telephone access is going to come from anywhere, then it's not going to be from that particular company. But the independents are likewise concerned about infrastructure. It's not only the ISPs that would have to build on their infrastructure to cope with that level of demand if it arrived overnight - the phone lines would need extra bandwidth too.

Once again, Demon disagrees. Given voice over internet protocol (IP) calls, there appears to be no barrier to offering unlimited international calls over the Net for the standard #10 a month. 'You just take the attitude that it's not voice, fax and data - it's all data,' Gardiner points out.

All that's blocking the move at the moment is that the larger telcos are making an awful lot of money from the low-volume, high-cost school of phone charging. 'They are chasing after the easy money,' he comments.

Others predict a seachange in charges as ISPs move towards the telco licence model of operating, although the transition is unlikely to be painless. INS serves the business community on leased lines more than the standard dial-up model of computing, but it's gaining experience of the standard model by selling into schools - which dial up on fixed-rate lines.

If this becomes widespread outside education, Richard Almeida, technical director of INS, believes it is the smaller companies that will be hit, not just because they'll need more lines and modems, but because of the sort of lines they'll need and the administration to back them up.

Currently, most ISPs run their organisations on an 0845 number of some description. This allows the caller to make their call at a standard rate, but what's invisible to the user is BT's charge for installing this sort of number.

It costs a company about #1,500 per line and if BT was charging even less per local charge call, it's obvious that this #1,500 would have to go up. If the recipient is not on BT but one of the other companies' lines, the equation gets more complex since charges are exchanged between the carriers.

Of equal importance is the administration side. 'At the moment, it's very easy to become a small ISP because you just collect your #10 a month per customer - there's no arguing about how long a call was or quibbling over bills,' says Almeida.

This ceases to be the case immediately when ISPs become obliged to charge per minute as they do in the US. As soon as bills become itemised, they become subject to error and queries, and heaven help the small ISP that isn't equipped to deal with it.

Almeida's view is that the only possible result would be a significant shakeout of ISPs. BT says it isn't going to happen, but with numerous ISPs going for telco status, it isn't necessarily going to be up to the ISPs alone for very long.

There is, however, one overriding consideration. If local calls were free, we'd never be free of double-glazing and kitchen salespeople. And that would never do.

SO WHAT IF LOCAL CALLS WERE FREE?

Arguably, BT is defending its own back by ruling out free local connections, but it's worth looking at the damage it could do if it were to announce such a scheme tomorrow. The following is a theoretically possible sequence of events which is, nevertheless, not grossly exaggerated.

Stage 1 BT is forced by cable and other competitors to make local calls free of charge.

Stage 2 After a brief flurry of internet activity and system outage by a number of ISPs, demand settles and systems are upgraded to cope with the new traffic.

Stage 3 Due to cheaper costs per upload and download, several companies and particularly individuals start putting irritating new animations on their sites - the proliferation of 56K modems increases this as a phenomenon and the whole internet becomes appallingly twee.

Stage 4 Internet telephony takes off. More faxes are sent over the Net, effectively knocking about 30 per cent off BT's international sales.

Stage 5 Internet telephony integration continues. Companies and individuals realise that using their ISP, they can call Australia for the cost of a local call - which is, of course, nothing - and they do so.

Stage 6 This causes another surge of Net usage and more dropouts occur initially. With people using the Net for more calls for free, BT's income and that of its competition sinks to an all-time low. ISPs are forced to put their charges up to limit the traffic.

Stage 7 Either the government brings in legislation to disallow internet telephone calls or levies a tax on it to compensate the telecoms industry, or BT and its competition reintroduce a charge for local calls. That's if they haven't already, by this stage.

THE PRICE IS RIGHT

Not everyone realises just how different pricing actually is when you compare the internet with the telephone companies. Both appear to operate in the same way - on the Net, you type, scan or speak something in and you upload it to your server. This can then be bounced from server to server around the world so someone in Sydney can pick it up and pay for only a local call.

It very rarely occurs to anyone to point out that this happens in telecoms as well. OK, the servers aren't there, but the amount of switchboards and points of receipt your voice passes through on its route to, say, Nebraska, is considerable and goes outside the BT network. So a BT call goes through an entirely different network with a different owner for your conversation to take place.

The telecoms companies operate this with a system called 'settlement'.

It is similar to that used by the leading clearing banks, in that the companies dole out their various payments at the end of the day.

No such system has been evolved for ISPs as yet, although analysts suggest it may arrive eventually. Until it does, it will cost you no more to log onto a Website in Matabeleland than it costs to look at a page being generated in the office next door.