ANALYSIS-New AOL service to shake up UK Internet
By Richard Meares
LONDON, Aug 25 (Reuters) - AOL Europe's launch of a free
Internet service provider is the biggest challenge yet to
Freeserve FRE.L, analysts said on Wednesday, but Britain's Web
wonder said it was unfazed.
"We welcome competition in a marketplace that has expanded
enormously since we started less than a year ago. Imitation is
the sincerest form of flattery," a Freeserve spokeswoman said.
Launched in September, Britain's pioneering free Internet
service provider (ISP) rapidly overtook AOL Europe as the market
leader in Britain and now has 1.3 million active users, but on
Tuesday, AOL hit back with what analysts said was a hefty punch.
It launched its own free service, Netscape Online, aimed at
Internet-savvy users, saying it was sure existing subscribers
would be happy to keep paying the monthly $16 fee for extra
services, such as parental control, and more technical support.
The aim is clearly to hit back at Freeserve, which was
valued at some 1.5 billion pounds ($2.4 billion) when its
parent, electrical retailer Dixons Plc DXNS.L, floated off a
fifth of it in Britain's biggest Internet-linked share offering
in July.
Freeserve shares were little changed at 201.5p on Wednesday,
up from their issue price of 150p but below highs of 247.5p hit
in the aftermath of the flotation.
"Netscape is the first strong competitor to Freeserve and
one they need to take very seriously," said Anthony Miller, an
analyst at UK IT research company, Richard Holway Ltd.
"Freeserve has the first-mover advantage but this is really
a transitory benefit in the free ISP market."
He said he was watching how the market would value Freeserve
once Netscape Online, a joint venture of America Online AOL.N
and Germany's Bertelsmann BTGGga.F, was up and running.
AOL Europe, with a million users, has said it felt compelled
to join in Britain's stampede to provide no-subscription ISPs,
but remained sceptical about their long-term viability.
Free ISPs make money -- or rather cushion their losses --
mainly from a share of telephone revenue and from advertising
and e-commerce. Calls in Britain are charged by length and not
as a flat rate per connection.
Since Freeserve launched, some 200 others have jumped on the
bandwagon, most of them new but some former subscription servers
who dropped their charges.
One major contender is CurrantBun.com, provided by Rupert
Murdoch's NCP.AX best selling Sun newspaper, which has one
third of a million users and aims to be in the top three ISPs.
Analysts said there was a place for smaller niche providers
-- such as those run by banks for customers or by popular
football clubs -- but that competition amongst 'generic' free
ISPs would separate the wheat from the chaff.
"Freeserve faces a challenge. They must go out and use the
capital they have raised to buy in content to win customer
loyalty -- there is very little of it around," said one London
IT analyst.
Freeserve, which is to offer online foreign exchange and
share dealing, said it had the best UK content on the Web.
While AOL Europe hopes Netscape Online will attack
Freeserve, analysts said it was fanciful to think it would not
also gnaw away at its own subscription-paying customers, though
inertia and the extra services would prevent many leaving.
Some research has shown scant new-user take-up for
subscription services, but AOL -- which aims its AOL and
Compuserve brands for families and professionals respectively --
said it had gained around 300,000 new users in the last year.
A spokeswoman said this was slower growth than prior to the
arrival of the free ISPs, "but still pretty healthy."
"AOL is making the right move. If they are going to bleed
subscribers to a free ISP, as I am sure is already happening,
they might as well bleed them to their own," said Miller.
($1=.6301 Pound)
REUTERS
Rtr 07:38 08-25-99 |
