IBD article. GTE, PC Makers Partner To Woo Web Subscribers
investors.com
Date: 4/16/98
Author: Reinhardt Krause
GTE Corp. wants to give Microsoft Corp. a
run for its money -and the phone giant has
enlisted some formidable allies.
GTE and a group of top personal computer
makers are taking part in a drive to sign up
Internet customers. GTE is launching a Web
service known as ''Easy Internet Access'' and
is getting key customer referrals from PC
makers in exchange for a ''bounty.''
That bounty traditionally has gone to
Microsoft, when it refers customers to
Internet service providers as they register
their Windows operating systems. Microsoft
wouldn't comment on the move by the
hardware companies, many of them partners
of the software titan. But it's clear PC makers
are hungry for higher margins.
''It's clear they're (PC makers) being driven
to (this by) sub-$1,000 machines,'' said
Michael Buldoc, director of product
management at GTE Internetworking in
Irving, Texas, the division overseeing the
initiative. ''They're all looking for a way to
increase margins through use of their
equipment. They want relationships that give
them a piece of the action.''
GTE has enlisted a who's who of PC makers
to market its service. They include Compaq
Computer Corp., Hewlett-Packard Co.,
Acer America Inc. and Sony Corp. These
PC makers also are looking to offer
one-button Internet service and seek a
national access provider as a partner.
The deals make GTE the default provider of
Internet access, or the service a PC
automatically refers to during operation. So
far, GTE has signed up about 30,000
subscribers under the plan.
These marketing deals with PC makers may
help GTE build up its already fast-growing
Internet business. GTE now provides access
to about 424,000 consumers and small
businesses.
GTE began offering Internet access in
mid-'96 and launched this program late last
year. It hopes to grab at least 250,000 more
Internet customers by year-end through the
referrals and have a total of 650,000
subscribers by then. GTE's average monthly
fee for Internet access is $19.95.
''For us, it's an acquisition tool,'' Buldoc said.
''And if you're a (PC maker) building a
one-button Internet solution onto a keyboard,
you need a national dial- up (presence) like
ours.''
GTE already is getting a little competition
from PC makers that also feel it's a good
idea. They know that when consumers boot
up their PCs for the first time, it can be a
powerful marketing weapon.
Direct PC seller Gateway 2000 Inc. launched
its own Internet business, Gateway.net, in
mid-November. The PC maker declined to
reveal subscriber numbers. Gateway.net
offers unlimited Internet access for $16.95
monthly.
Gateway's machines offer consumers several
Internet choices. But its own service is selling
best, says Jim Von Holle, director of
software Internet services.
''We're signing up more people to the
Gateway.net service than we are to other
services we preload, such as America Online
or AT&T,'' he said.
Unlike most trial offers, GTE doesn't require
consumers to provide upfront credit card
information. GTE offers consumers and small
businesses up to 50 free hours of Internet
access over a 90-day trial period. Trial
subscribers can tap into the Internet for a
maximum of two hours a day.
Since July, more than 80,000 PC buyers
have taken advantage of the trial offer.
''There is no other national ISP free trial offer
with no strings attached,'' Buldoc claimed.
To run this operation, GTE formed its
Internetworking unit last year, after acquiring
Internet company BBN Corp. for $616
million.
A key partner for GTE in all this is
Encompass Inc. of Atlanta, Ga., which makes
the software used to sign up customers. It
was Encompass that originally wanted to
challenge Microsoft, but it needed a larger
partner with a national presence. It agreed to
work with GTE last year.
To activate Encompass' Internet service
software, PC buyers click on a computer
screen icon. The software, which is based on
Microsoft's Internet Explorer, also simplifies
electronic mail and other tasks.
Most important, it usually takes consumers
20 to 30 minutes to sign up for Internet
service, says John Willcutts, Encompass'
chief executive. With Encompass, it only
takes a minute or two.
Encompass' software is preloaded on
Compaq's Presario models for consumers.
The service also is offered on HP's Pavilion
and Brio models, as well as Acer's Aspire
PC line. GTE began offering the service on
Sony's Velo models earlier this year. And
more deals could follow.
''We expect to announce similar ventures
shortly,'' said Charles Lee, GTE's chairman,
at a recent conference.
Revenue from access fees isn't shared with
either PC makers or Encompass, GTE says.
Buldoc declines to say how much of a bounty
GTE pays PC makers after the 90-day trial
period.
''We weigh the opportunity against our
ubscriber) acquisition costs model,'' he said.
Still, the phone company is growing more
optimistic about this marketing program. Its
goal of signing up 250,000 subscribers
through the program was recently increased
from 150,000, Buldoc says.
Analysts also say that GTE has been one of
the most aggressive phone companies in
upgrading its network to faster modem
technology, including the upcoming digital
subscriber line, or DSL.
On Monday, GTE said it plans to offer DSL
services in 30 states by year-end. DSL
modems send data about 30 times faster than
ordinary analog modems. GTE
Internetworking plans to offer DSL with
Internet access service for about $60 a
month.
GTE and several regional Bells recently
formed a consortium with PC makers to
promote DSL. Closer marketing ties between
PC makers and phone companies may evolve
from that.
(C) Copyright 1998 Investors Business Daily,
Inc.
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