Prices fall as ISPs slug it out

Net newcomer Meridian slashes monthly flat-rate charges as the battle heats up, reports KEITH NEWMAN.


The Internet price wars heated up yesterday - first with Ihug dropping its monthly flat rate to $40 to match Xtra, then with both being trumped by newcomer Meridian's $35 rate.

Meridian, a "small" Web development and marketing company, became a corporate ISP three years ago and entered the domestic market in 1997 - saving its pricing onslaught until it had invested in new technology.

Until now, most New Zealand Internet users have had to pay for their time on-line (eg, $2.50 an hour) or for the amount downloaded (eg, $1 a megabyte of data received).

But last week, Xtra and ClearNet joined Ihug with flat-rate offerings, allowing endless Net activity for a monthly fee. ClearNet announced its intention without a price tag and, within two days, Xtra launched a $40 flat-rate fee.

By yesterday morning it claimed that 6000 customers had signed up. Xtra has, however, put a cap on access with the right to disconnect after 12 hours' use a day.

Ihug has had a $45 flat-rate service for four years. Last week it doubled on-line time to 60 hours for its $30 Sapphire account-holders, then yesterday dropped $5 from its flat rate to match Xtra.

All eyes are now on ClearNet, which will announce its monthly fee next Tuesday.

The fourth-largest player in the market, Voyager, majority owned by Australia's OzeMail, has indicated plans for a series of bundled options likely to add more good news for consumers.

Voyager, which claims 28,000 Internet users, pioneered Internet telephony in New Zealand a year ago and has "several thousand customers."

Like Xtra, ClearNet, Iconz and others, it has rapidly begun to differentiate its business by offering business-class connections and services which can essentially become secure private networks for internal communications, electronic commerce or creating an on-line shopfront.

There has been a spate of price adjustments across other Internet providers in recent months, partly due to the lowering of wholesale bandwidth to ISPs which has been passed on to consumers.

There are about 80 ISPs in New Zealand. According to ACNielsen, 24 per cent of New Zealanders use the Internet regularly. In February this year it was estimated that 42 per cent, or 1,287,000 Kiwis, had access to the Net, spending an average of 208 minutes a week on-line.

Research company IDC counted 315,020 subscriber accounts in 1998 with 61.8 per cent being residential. It found ISP revenue totalled $116,771,189 - with the bulk ($94,170,489) coming from access provision.

This is the first major price war for a number of years - possibly since Telecom entered the market with Xtra. It is also a sign that the market is maturing, with users demanding more for their money.

The way forward is not only based on pricing but on the ability to provide quality of service, high-speed bandwidth and 24-hour help. The front line is essentially a marketing battle, as can be seen in the war of images going on between Xtra and Ihug.

Ihug is pouring $3 million into a massive campaign promoting both its Internet access and national and international Internet-based phone service launched in March, which now has 7000 customers.

Ihug, now 30 per cent owned by Sky TV, has bypassed the major telecommunications carriers by purchasing space on the Panamsat satellite from which it provides bandwidth to nearly 100 Internet providers in Australia. It is believed a similar service is about to be offered to smaller NZ ISPs.

Ihug also offers a pay-TV service which it is gradually rolling out beyond Auckland. Its high-speed Internet service is also about to become more widely available.

The industry is closely monitoring advances in other wireless areas including the 2GHz spectrum for third-generation cellular networks and wireless spectrum which both Clear and Formus Communications now own the rights to.

Voyager general manager Brent Smith believes flat rate is a response to "churn" in the market.

He said his company did not want to "chase the tail" but planned to announce this month bundled products and services at less than $40 a month.

He believed high-speed Internet access was an important next step for his organisation.

However, moving from time and data-based charging to flat-rate access is likely to put significant pressure on some ISPs.

Ihug director Tim Wood warned that the move could have a significant impact on user patterns. He said Clear's proposed $2 million investment in technology to gear up for flat rate was "like throwing a glass of water at a bushfire." The whole network architecture would have to be changed.

"History has already shown what happens when ISPs make major price cuts. When Xtra dropped its hourly rate from $5 to $2.50 in August 1996, the network got slammed and nearly fell over because they didn't have the capacity and modem lines."

Ihug had spent $10 million on dial-up boxes alone.

Ihug was now waiting for Clear to make its pricing announcement before firming up further price shifts and launching a new nationwide high-speed Internet later this month.

The chief executive of the Telecommunications Users, Ernie Newman, said the move to flat rates was likely to benefit business and home users, but he warned customers to study their use patterns and do their sums before signing up.