Not two months after Oftel stated proudly that internet access in the UK was cheaper than California and Germany, a report by investment house Merrill Lynch says this is about to change.

The cost of internet access could rise over the next 18 months as ISPs fall in numbers and advertising revenue slumps, according to Merrill Lynch.

"Competitive pressures, particularly from free ISPs which are currently withering as fast as they were born, have abated," said Merrill Lynch analyst Peter Bradshaw.

Released last week, the report indicates price increases are 'inevitable' and that price pressure has almost disappeared.

These findings seem to reflect current changes in the market. Freeserve increased the monthly price of its unmetered internet package from £10 to £12.99 in January, and AOL increased its US prices in June. AOL is now pricier for Americans than for UK users, but the firm has assured customers it has no immediate plans to increase UK prices.

But telco watchdog Oftel strongly disagrees with the findings. Oftel said LLU (local loop unbundling) would see more competition in the broadband market and that prices for narrowband (modem) access in the UK were currently among the cheapest in the world.

"We cannot really speculate on what the market will do — I don't think anyone can — but we are pushing for increased competition and LLU will ensure more players in the market over the next couple of years," said a spokesperson at Oftel.