MSFT caves in and will now go free in the UK. AOL next? Jeff
Microsoft to Offer Free Internet Access in U.K. After Losing Subscribers
By Bundeep S. Rangar
Microsoft Drops Subscription Fee for U.K. Internet Access
London, June 8 (Bloomberg) -- Microsoft Corp., the world's
largest software maker, said it dropped subscription charges for
its U.K. Internet access service, the first time it has done so
anywhere, becoming the latest company to cave in to the growing
popularity of free Internet access providers.
The move by Microsoft Network follows a loss of about a
fifth of its 150,000 subscribers this year in Britain, analysts
say. AOL Europe, until recently the top online service provider
with about 600,000 accounts, said it might also consider offering
free Internet access in the U.K.
While Microsoft is opting for the free model, AOL faces a
dilemma. It needs to increase users and traffic to its site to
build advertising and transaction-based revenue -- easily
accomplished by going free. Yet AOL also needs to preserve
subscription charges, which accounted for 85 percent of its $1.8
billion worldwide revenue in the first half of fiscal 1999.
''Going free is not an option anymore -- it's the cost of
being a player,'' said Joe Sawyer, an analyst at Forrester
Research Inc. ''The access model is getting commoditized.''
Freeserve, a free Internet access service started in
September by Dixons Group Plc, Britain's largest electronics and
appliances retailer, took only three months to become the U.K.'s
top Internet service provider. It currently has about 1.4 million
users, more than twice that of AOL UK.
Only last month, AOL Europe, a venture between America
Online Inc., the world's biggest online service, and Bertelsmann
AG, the world's No. 3 media company, cut its flat-fee charge by
about 40 percent in the U.K. to 9.99 pounds ($16).
''That does not mean that we will never launch a free ISP or
make that an option -- we may very well do so,'' said Christopher
Hill, AOL's executive vice president of corporate development.
Free Flow
U.K. businesses, from phone companies to book retailers and
banks to sporting clubs, are offering free Internet access so
they can muster enough users to attract advertising money and
commission on sales through their sites.
Buying and selling goods on the Internet is expected to
increase to $13 billion by 2001 in the U.K. from $257 million in
1998, according to market research company Forrester Research
Inc. Across Europe, it will grow to $64 billion, or almost 1
percent of gross domestic product, Forrester predicts.
''That's where the future lies -- users will become
consumers,'' said Forrester's Sawyer.
Instead of dropping its subscription fees, AOL has been
pressuring phone companies to drop charges for local phone calls.
''We want phone companies to provide unmetered access,''
said Hill. ''Phone charges have been the biggest impediment to
the growth of Internet usage in Europe.''
User Boycott
The concern was highlighted this weekend by a boycott of
online users demanding cheaper access to the Internet. While the
impact of the strike could not easily be gauged, organizers said
they had at least succeeded in raising awareness of the issue of
local phone call charges.
The protest was supported by a recent Jupiter Communications
study in Germany, France and Britain, which suggested that while
11 percent of consumers said they were likely to go online in the
next year, 40 percent would do so if phone charges were dropped.
Also this weekend, British Telecommunications Plc, the
U.K.'s largest phone company, began offering phone connection to
an ISP for a flat fee of 11.75 pounds ($19) during weekends
instead of billing per minute of usage.
BT's move follows an earlier decision to scrap its pay-as-
you-go ClickPlus Internet access service in favor of a free one
called ClickFree. LineOne, a venture by BT, News Corp. Ltd. and
United News and Media Plc, until recently the third biggest
online service provider, also recently dropped its subscription
charges.
''Even if phone charges are dropped, the free ISPs will
continue to be valued over those that charge a subscription
fee,'' said Nick Jones, an analyst at Jupiter Communications.
Sharing Revenue
The free Internet access model works in the U.K. and other
European countries because phone companies share revenue from
local phone calls. A local phone company retains between 33
percent and 60 percent of the charge, with the balance going to
the network operator, which shares its revenue with the free ISP.
Users in the U.K. pay between 1 penny and 4 pence per minute
in local phone charges.
To compensate for the phone charges, companies such as
Prudential Plc, Britain's largest insurer, Barclays Plc, the
second-largest bank, W.H. Smith, the largest book retailer, Tesco
Plc, the largest food retailer and the Arsenal Football Club Plc
offer free access.
While most of the free Internet service providers charge
about 50 pence a minute for customer support, callers to
Microsoft's FreeWeb customer service will only pay local call
charges, Microsoft said.
ISPs are trying to build users in a growing Internet market.
The number of users in Europe are expected to more than double to
88 million by 2005, according to U.K. market researcher
Datamonitor Plc.
''The question for the likes of AOL is whether they want a
shrinking piece in a growing Internet pie,'' said Forrester's
Sawyer.
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