The impact of the Government's plans could throw the economics of the sector - which is dominated by loss-making businesses still in their investment phase - into disarray. The warning came from Demon Internet, the internet service provider owned by multi-utility Scottish Power.
In a detailed submission to the Home Office, the government department responsible for wire-tapping, Demon said: "We estimate that the costs of providing permanent facilities ... would exceed pounds 1m a year. This represents a tax of some 10-15 per cent of our network running costs."
Richard Clayton, a Demon executive, said that all internet service providers would end up "with similar sums" leading to "higher prices across the sector than there otherwise would be".
The warning comes as companies make public their responses to Home Office plans to revise the 1985 Interception of Communications Act in November's Queen's Speech. The plans, launched by the Home Secretary, Jack Straw, for consultation in June, aim to extend existing powers to intercept communications to cover all telecoms operators and internet service providers.
Currently phone taps - considered a vital weapon in the fight against organised crime - are only legal across BT's phone system (and mail intercepts across the Post Office network).
Demon's claim was backed by other service providers. Tim Pearson, chairman of the Internet Service Providers Association (ISPA), a trade body, said the figures were "high, but not unrealistic".
The threat of higher internet charges could place the Department of Trade and Industry, which is responsible for promoting e-commerce, at loggerheads with the Home Office. In May, the two ministries fought over the regulation of encryption technology, a vital component in e-commerce. The Prime Minister, Tony Blair, had to intervene, forcing the Home Office to back down.
The UK has a large number of internet service providers, ranging from Arsenal Football Club to the Nationwide Building Society, which are battling to reduce their costs, principally by eliminating subscription fees.
n Dan Sabbagh is senior reporter on 'Computing'.Reuse content