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Outlook: Free Internet

WELL DONE Dixons, for being the first to offer an all singing and dancing internet service for free. The days when pounds 10 -pounds 15 a month was the cost of being connected to the Web are finally over, it would seem. But hold on a moment; it's not free, is it? As anyone with children or an anorak as a lodger will know, the effect of being wired to the Internet is to double your telephone bill, for every three minutes on the net is the cost of a local call. And boy does all that surfing add up. This is why Dixons, or rather Energis, which is providing the service to Dixons, is able to do it for free.

What Energis, the telecoms group, gets from the deal is a share of each call terminated, which given that Freeserve is almost bound to become one of the biggest service providers in the UK, could be a quite considerable source of revenue. On top of that it will get advertising from Dixons and others that pay to be on screen, while there could also be big money to be made out of electronic commerce.

All in all, it's a wonder that so many service providers, including astonishingly the internet service offered by BT, have been able to get away with charging for so long. For telephone companies, the extra traffic provided by the internet should be as much payment as they need.

One reason they have got away with it is that the Internet industry has been imported from the US, where local calls are free and service providers thus have to charge a subscription in order to recoup their costs. Here in Britain the economics can be made to work the other way round.

All of which goes to show how far telephony tariffs have to go to become competitive with the US. It is still not possible to pay a flat rate rental in the UK for unlimited local telephone use, nor is there any likelihood of this happening while BT's local loop is so interwoven with the rest of the network. Furthermore, no competitor is going to risk starting a price war with BT by taking the initiative.

So, for the time being, ordinary domestic customers will simply have to live with much higher incremental costs for Internet usage than their American counterparts, notwithstanding the new free Internet service being offered by Dixons and Energis. Something, perhaps, at which Gordon Brown's competitiveness review should take a long hard look.