A flat `no' for AltaVista U.K.

It has all the elements of a good beach read: corporate chicanery, cover-ups, alleged double-crosses, an international manhunt and 90,000 people who have mysteriously disappeared.

For those who always peek at the ending of a thriller, here it is: AltaVista said last Tuesday that it won't be able to deliver its promised flat-rate Internet access in the U.K. anytime soon.

That promise was made last February, when AltaVista U.K. CEO Andrew Mitchell announced that the company would buck the trend among British ISPs by providing unmetered Internet access. Under the deal offered at that time, U.K. subscribers would pay AltaVista an annual fee of $45 to $75, plus a connection fee. After the first year, the annual fee would drop to $15 to $30.

Subscribers would use a toll-free number instead of paying per-minute call costs. AltaVista would subsidize the cost of the phone connections by selling advertising on the start page used by subscribers.

Most British ISPs rely on getting a cut of those per-minute calling costs from local telecom providers. Freeserve, the largest ISP in the country with 140,000 users, charges no monthly fee for access but gets as much as 50% of its revenue from interconnection tariffs paid to Energis, its telecom partner.

"The industry needs kick-starting here," Mitchell said at the time. The offer made headlines in Europe and spawned similar offers from Virgin Net and from Britain's largest cable operators, NTL and Telewest, which bundle Internet access withlocal phone service.

U.K. Prime Minister Tony Blair hailed the new product as an "Internet for the people."

The AltaVista service was due to launch in June but did not materialize. Instead, the ISP announced a new price structure - about $90 per year, every year.

In July, company spokespeople were widely quoted as saying AltaVista Unlimited Internet Access had launched on June 30 and was being turned on for pre-registered subscribers "in a controlled manner." They said 90,000 customers - out of 250,000 who requested the service - would be online by the end of July.

By the beginning of August, a nationwide hunt was on for actual users. Four national newspapers, Internet magazines and online chat sites asked anyone accessing the Web via the unmetered service to come forth; no one did.

To deepen the mystery, Mitchell issued instructions that only he could comment about the service - and then he promptly took off for a series of vacations. At the June launch deadline, he was reportedly at sea off the coast of France. In early August, he left for the U.S.

Reappearing in the U.K. on Aug. 22, Mitchell told the press that the service had never actually gone live and that the company was "absolutely remiss" in not disclosing the facts sooner. He pointed the finger at BT, which he said had promised to deliver flat-rate phone circuits in September but was now unable to produce them before January 2001.

Pierre Paperon, president of AltaVista Europe, said the company's original business plan estimated costs of about $900 per circuit. He said BT now is charging about $1500 per circuit.

"AltaVista is disappointed that the current state of the U.K. telecom market has not enabled the company to deliver an unmetered service within the timescales originally planned," a statement said. The company said the unmetered service was "on hold" and advised those who had enrolled to choose one of the ISP's two existing plans - one that offers 210 hours of free Internet calls per month during off-peak hours, and another that charges standard per-minute local call fees.

Both BT and regulator Oftel refuse to accept the blame for the dud liftoff.

"It is disappointing to see AltaVista withdraw from the market," said David Edmonds, Oftel's director general of telecommunications. "AltaVista chose to launch their product in March, in advance of wholesale products being available. It is up to AltaVista, as [with] other commercial companies, to make sure that before they launch a product, they have a sound business plan to support it."

BT said AltaVista caused its own misfortune by outrunning the market.

"Today's claim that the launch of their service was dependent on BT inventing new products is not what they told the world last February," said Ian Morfett, director of regulatory affairs for BT. "Back then, it was as much a surprise to BT as it was to the whole industry - many observers asked how AltaVista could make such an offer before having negotiated a deal with a telecom supplier."

BT received an order from Edmonds on May 26 to begin selling wholesale flat-rate telecom connectivity. The carrier responded by offering SurfTime, a wholesale unmetered connection from its local exchanges. But most telcos interconnect with BT at the central office and must build their own lines to the local exchanges or lease BT's lines - still at a per-second charge.

AltaVista will meet with Oftel this week to complain about BT's tactics in making unmetered access hard to get, Paperon said.

But the real problem may be the paper-thin margins of the dial-up industry, said Lars Godell, an analyst at Forrester Research.

"AltaVista is facing the reality that unmetered narrowband access is not a sustainable business model," he said.