Most Xtra users accept billing change

By PETER GRIFFIN

Two months after Xtra abolished its low-use, pay-as-you-go internet usage model, the internet provider says it has shed few customers and most have upgraded to higher-use plans.

Xtra, the country's largest internet service provider (ISP), discontinued its NZPlan account in September.

The account allowed infrequent internet users to pay only for the access time they used.

About half Xtra's customer base was on NZPlan, some paying negligible amounts each month but still costing Xtra in billing and customer service.

Xtra's consumer general manager, Rod Snodgrass, said "a few thousand" of the many customers accessing the internet through NZPlan had been a drain on the business.

But the heat had come on Xtra largely in the media for introducing the minimum fee, he said, and the customer migration to fixed-rate plans had been relatively smooth.

"Commercial reality had to set in on that one. There was a group in the market of what we call 'vampires', which were costing us money overall."

Many customers had upgraded to Xtra's Prepay 10 deal ($10 for 10 hours' access) - bypassing the new entry-level account of $5 for two hours access a month.

But a number had gone to the other end of the scale, taking the $27.95 unlimited access option and a $19.95 off-peak option, allowing unlimited surfing during the day and late at night.

The number of users abandoning Xtra as a result of the changes had been low.

But in general, said Mr Snodgrass, growth in the low-level usage plans was flat and business overall was tight.

"It's a very low-margin business; it's certainly not fields of gold," he said, adding, however, that Xtra was a profitable business.

The ISP boosted its registered customer base to 392,000 in the quarter to September 30. Of that number, 320,000 held active accounts.

Xtra brought in $24 million for Telecom, its arms-length parent, up 33.3 per cent on the same quarter last year. Average internet usage a month now approached 34 hours.

But Telecom's quarterly report says that although customers are using the internet for longer, that is not leading to increased revenue because most people are on flat-rate accounts.

Since customer take-up is adding less in the way of new revenue, Xtra is having to look to fresh areas for growth.

The company says advertising through the XtraMSN portal has huge potential, but in a depressed online advertising market it is yet to generate revenue.

"The portal is not making millions of dollars out of advertising, but it will," said Mr Snodgrass, pointing out that 800,000 visitors accessed the site each month.

"With that sort of usage it becomes a credible advertising medium."

A "soft launch" of online shopping services would be held before Christmas and new content introduced to encourage site loyalty.

A deal with children's book publisher Wendy Pye would allow XtraMSN users to subscribe to online learning services.

Mr Snodgrass said the Australian site NineMSN gave a good indication of what XtraMSN had in store.

Xtra was still negotiating with Sky TV to provide internet services for the pay-TV operator's overdue interactive TV platform. A firm deal had yet to be signed.

"Sky is still finding its way in the IP space. We're talking to them. We'll do something on a commercial basis."

Sky spokesman Tony O'Brien said the company was preparing to open customer access to all the major ISP mail services through its decoders.

For those without an ISP account, Sky would provide e-mail access through the TV screen using its decoders and "Skymail" server.

Web browsing through the TV screen was not going to be provided, but web-based mail services could be accessed through software on the OpenTV platform being used by Sky. Access to services like Hotmail would just require the operator's authorisation.

Further down the track, Xtra may interact with Microsoft's internet-ready games console Xbox, bringing the ISP new opportunities.

Meanwhile, the level of competition Xtra will face from the merged internet operations of Clear and TelstraSaturn is still unclear.

Mr Snodgrass said Clearnet, the country's second-largest ISP, and TelstraSaturn's internet arm, comprising acquisitions bought for over $40 million, could collectively represent around 20 per cent of the ISP market.

The operations of Paradise, Netlink and Zivo represent TelstraSaturn's consumer and business-oriented internet services.

"It will pose a challenge, definitely," said Mr Snodgrass, "but it's going to be a messy place there for a while."

Xtra

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