British Telecom Loses One to the Little Guy

It's the sort of battle that the Internet is famous for: a tiny startup with a bold idea, taking on a supreme-but-sluggish corporate institution.

But the David-and-Goliath struggle between Localtel, a small, free ISP (Internet service provider), and British Telecommunications Ltd. (BT) has been skewed from the start.

As a reseller of BT telephony services to consumers, Localtel has to tell BT whenever it wins a customer away from its hulking competitor -- and BT, which offers its own Internet service, has to flick the switch, one at a time.

This may sound like a hard way to run a business, but the U.K. government tossed Localtel a lifeline last week. Oftel, the regulatory body that oversees telephone networks in Britain, ordered BT to make life easier for the smaller company. Responding to Localtel complaints that BT was taking too long to hand customers over and switch the billing, Oftel told BT to pick up the pace and stop hampering Localtel's growth.

Unlike in the U.S., where most customers pay a flat rate for local calls, phone customers in the U.K. must pay by the minute, with peak-period charges of about 5 pence (8 U.S. cents) per minute. With the arrival of the Internet, and amid BT's ongoing reluctance to offer its customers flat-rate access, a horde of "free" ISPs appeared on the scene, including the much-touted Freeserve. These ISPs can offer consumer free access to the Internet because they take a cut of BT's profits from the phone charges that mount while users are online.

That arrangement has allowed free ISPs to explode. According to industry analysts at Fletcher Research, free ISP usage in the U.K. has grown from 1 million accounts in December 1998 to 5 million in June 1999 -- a five-fold increase in six months.

For its part, Localtel decided to fuse the free-access gambit with another idea. Under antimonopoly rules enacted in 1984, BT is required to allow other companies to resell voice and data telephony services on its network. Localtel not only offers cheaper telephony services, but also, through its Screaming.net service, provides customers with free access and no local phone charges on evenings and weekends.

Since the debut of Screaming.net this past April, BT and other ISPs have also started giving away off-peak Internet service. But as the first out of the gate, Screaming.net saw some 3,000 customers sign up for the service each day, according to Localtel. The service now claims more than 100,000 users.

But many of those users have suffered in their attempts to actually log on, says Localtel, because BT has been slow to set them up. In the face of Screaming.net's heavy customer volume, the billing process BT had set up to serve resellers like Localtel was woefully inadequate, says Julie Swift, Localtel's spokeswoman. "Their in-house processes just fell apart," she says, explaining that although Localtel was filing its requests electronically, BT employees had to print each one out and re-enter the data by hand. "They couldn't handle the number of requests we sent in."

The problem became so bad that Localtel filed a complaint in May with regulator Oftel. After an eight-week investigation, Oftel found last week that BT's procedures were causing serious problems for independent resellers like Localtel.

An Oftel spokeswoman who asked not to be named says BT's paperwork problems were so extreme, some customers were left without any phone service at all for up to thirty days. "Currently, (these) providers are experiencing a number of problems, and in Oftel's view, the problems are from BT not providing adequate information," she says.

Oftel has given BT two months to correct the trouble. If the company doesn't comply in that time frame, the group will take more aggressive action, she says. "This could lead to us taking legal proceedings against them for breaching their license."

BT spokesman Simon Craven says his company is "slightly disappointed" at Oftel's order, and says BT has already done "a great deal of work" to provide service to resellers. He declines to discuss specifics about the company's internal procedures.

Nonetheless, Craven says that BT will comply with Oftel's order. "We've known about these issues for some time," he says. "The fact that there are problems isn't news to us."

In the meantime, Localtel's Swift says her company is trying to restore its damaged reputation.

"We hope this will exonerate us in the public eye," says Swift. "The problems we've been having are not of our own making. We've been having some extremely bad press. Localtel has been doing everything in our power to offer a choice to our customers and we have been hindered."

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