By Kevin Murphy

A decision by UK telecommunications regulator Oftel could spell disaster for small free internet service providers, it emerged yesterday. A ruling on how the money from telephone calls are split between network operators means that ISPs with few points of interconnect to British Telecommunications PlcÆs national network could find their revenues from dialup access dropping sharply.

Subscription-free ISPs in the UK, such as Freeserve Plc, subsidize their services by taking a cut of the charges each dialup customer pays for each minute they are online. These charges are made by means of Number Translation Services, a BT system whereby 0845-prefix calls are charged at the local rate of between 1 pence and 4 pence per minute, no matter where the call originates and terminates.

Most calls originate on BTÆs network, as it owns over 80% of UK telephony customers. ISPs partner with or are themselves network operators, and they claim a percentage of the call based on the fact that the traffic passes over their network for the second part of the trip after it has left BTÆs network. This percentage was until this week a flat-rate that applied to any operator no matter how large.

But Oftel yesterday released its review of NTS charging, and has come up with a new formula whereby how much an operator receives is tied to the number of points that its network interconnects with BTÆs. The system is meant to be fair in that BT will receive a larger portion of the revenue based on how far traffic has to travel on its own network before being switched to the rival operatorÆs network. This may not be a problem for ISPs that use the networks of the likes of Cable & Wireless Plc or Energis Plc, relatively large carriers. But smaller firms with only one point of interconnect will find their payments from BT fall.

It is too early to tell whether this means ISPs could go out of business, but many of them fund themselves almost exclusively through dialup revenues, so casualties seem likely. The feeling among some mid-size carriers currently is that the new rules, which come retrospectively into effect November 1 1999, are inordinately complex. Oftel and BT have evidently been little use in helping these firms prepare for the mathematical overhaul they will have to give their business models in the next two weeks.