TO ALL XSNI LONGS...READ THIS ARTICLE.
Pay close attention to the following passage "On the other, its CompuServe unit, Britain's third-
largest Internet provider with about 400,000 users, is being
challenged by X-Stream Technologies U.K. Ltd., a privately held
company that pioneered free Internet access in the U.K. last
March. "
PRIVATELY HELD???????? I am writing to Bloomberg for clarification and have reduced my position accordingly. Jeff
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Technology News
Mon, 19 Jul 1999, 11:40am EDT
AOL Europe to Start Free Internet Access Service in U.K.; Rivals Freeserve
By Bundeep S. Rangar
AOL Europe to Start Free Internet Access Service in the U.K.
London, July 19 (Bloomberg) -- AOL Europe said it will start
Netscape Online, a free Internet access service in the U.K.,
ceding to the popularity of free Internet providers only two
months after it dismissed them as unsustainable businesses.
AOL Europe, a venture between America Online Inc., the
world's No. 1 online service, and Germany's Bertelsmann AG, the
world's No. 3 media company, said AOL UK will start its new
service to complement its existing AOL and CompuServe brands.
AOL is fighting to counter the advent of about a 100 free
Internet providers in the U.K. during the past year. Freeserve,
started by U.K. retailer Dixons Group Plc, leapfrogged AOL to
steal the No. 1 title in three months of running. In response,
AOL cut charges by 40 percent in May. Its latest move comes a
week before Freeserve, which has more than twice AOL's 600,000
users, is to sell shares on Nasdaq and the London Stock Exchange.
''Freeserve is not the last revolution that the U.K.
Internet market is going to see,'' said Neil Bradford, director
at Fletcher Research Ltd., a U.K. market research company. ''AOL
has a brand name and better content to leverage.''
AOL has so far resisted providing free Internet access
because it would lose out on subscription fees, which account for
about 85 percent of its global revenue.
Its new service, starting in the middle of August, will
offer better content and service than its rivals. It will include
the Netscape Navigator browser and the AOL Instant Messenger 2.0,
which alerts a user when friends or colleagues go online.
''Netscape Online will complement our full-featured, premium
AOL brand for the mainstream, family market and CompuServe brand
for the professional market,'' said CEO Andreas Schmidt. Only two
months ago, he said free Internet access was ''not a sustainable
business model.''
From Both Fronts
The change in strategy comes as AOL UK faces a losing battle
on both fronts. On the one hand, its AOL service has lost ground
to Freeserve, which will be valued at about 1.4 billion pounds
next month. On the other, its CompuServe unit, Britain's third-
largest Internet provider with about 400,000 users, is being
challenged by X-Stream Technologies U.K. Ltd., a privately held
company that pioneered free Internet access in the U.K. last
March. X-Stream frequently offers toll-free phone calls to
supplement its free Internet access offering.
Last month, when Microsoft's MSN service dropped
subscription fees in the U.K., Christopher Hill, AOL's executive
vice president of corporate development, indicated it was also
considering offering Internet access for free.
In addition to pure-play Internet companies, banks, sports
and media companies such as British Sky Broadcasting Plc offer
Internet access along with a satellite decoder box for free. Last
week, Tiny Computers Ltd., a U.K. personal computer maker, said
users of its fledgling phone service can get PCs and Internet
access for free.
''Internet access is a commodity,'' said George O'Connor, an
analyst at Granville Plc. ''What matters is content and service
to attract users and drive advertising and e-commerce revenue.''
The free Internet access model works because the U.K.
telecommunications framework allows phone companies to share
revenue from local phone calls. British Telecommunications Plc,
for example, 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 pence and 4 pence per minute
in local phone charges. AOL did not disclose which telephone
company it has tied up with to provide its free service. It will
charge 50 pence per minute for customer support.
AOL's shares rose as much as 2.50 euros, or 2.14 percent, to
119.30 in German trading. Bertelsmann's shares fell as much as
0.50 euro, or 0.23 percent, to 214.50 euros.
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