Revealed: how to set up a chat room for £50

It costs just £50 to set up an unregulated internet chatroom that can be used by thousands of people, The Independent on Sunday can reveal.

Last week Microsoft declared war on internet paedophiles by announcing the closure of its UK-based chatrooms. But the IoS has established the ease with which an unregulated chatroom can be set up - and the difficulty for authorities in preventing paedophiles using chatrooms to contact children with the intention of sexually abusing them.

The chatroom software may seem complex, handling dozens of "conversations" at once, but it is actually very simple to procure. Plenty of free programs can be found with a search engine, internet domain names can be registered and plenty of bandwidth can be bought in preparation for a popular service. Then you simply wait for refugees from former providers such as AOL and MSN to start rolling in.

The popularity of chatrooms has exploded over the past five years as Britain has come online. Adults and children who wish to interact with each other without too great a cost use chatrooms as their preferred method of communication.

A survey last year by the University of Central Lancaster found that one in five children aged nine to 16 had used a chatroom, and one in 10 had met somebody in real life following an online encounter. Three-quarters of those had gone without an adult. And at least 27 court cases in Britain involving child abuse have been linked to chatrooms - the latest on Wednesday, when David Hipperson, 22, of Hitchin in Hertfordshire, admitted gross indecency with a 14-year-old girl he had contacted in an MSN chatroom and then met twice for sex.

Cases like that prompted MSN, the internet arm of Microsoft, to make the announcement that it will close its unmoderated chatrooms globally from 14 October. It also illustrated exactly why chatrooms are becoming too hot for the big corporates to handle. "Moderating" chatrooms - that is, having a live person monitoring messages - is a losing game.

Whereas software and servers are cheap, people are not and even volunteers rebel at working for no payment. For AOL, which quietly shut down its chatrooms in May, and MSN, the salaries for moderators outweighed any benefits from advertising.

Cynics have pointed out that those two giants are also the operators of competing "instant messaging" systems, which allow pairs of people to chat online. IM, as it is called, is entirely unmoderated; and also offers the chance to sell advertising. Some suspect that Microsoft will charge for its MSN Messenger service once there are sufficient users relying on it.

But John Carr, director of the children and technology unit at NCH, and internet adviser to the Children's Charities Coalition for Internet Safety, is delighted. He thinks the decision is a watershed and that more big companies will follow suit. "If I was a corporate lawyer for Lycos or Yahoo!, I would be very worried," he said. "If I was a parent of a child who subsequently was injured after an encounter following a chatroom meeting, I would think the chance of successfully suing [the chatroom provider] for negligence has gone up. They can't argue that there isn't an alternative; there is: closing it. Microsoft has put the industry on notice."

Some disagree - and dislike the results of pressure from groups like NCH. "MSN can't be faulted for this decision," said Malcolm Hutty, regulation officer of the London Internet Exchange, Europe's largest internet exchange point. "Like all ISPs, they have been under pressure from the child protection lobby. But society will be poorer if internet services are gradually removed."

But Parul Amlani, who with his brother Bobby runs UKChatterbox.com, says that any suggestion that chatrooms will disappear from the internet is "wishful thinking".

He added: "There are always going to be people there to provide that sort of service. And there's always Internet Relay Chat, which isn't a website but instead runs continuously on thousands of servers. The lay person probably won't know how to use it. But people who want to, will."

Children and the net: the facts

Five million children aged nine to 16 use over 10,000 internet chatrooms per year in the UK.

Lycos: 100,000 users per month in the UK. Controls: 97 moderators; 24-hour scrutiny.

MSN: 1.2 million UK users per month. Controls: a child protection officer is employed but content is not moderated. Set to close on 14 October.

AOL: 2 million subscribers, though few use chatrooms. Controls: 300 moderators check Kids and Teens chatrooms. Open chatrooms were shut in May.

Yahoo: Approximately 1 million users per month. Controls: UK and Ireland chatrooms are not moderated, but the company does provide warnings.

UK Chatterbox: 50,000 visitors per month. Controls: Chatrooms are moderated by 15 volunteers who erase explicit messages. New users must read safety guidelines.