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Why free Net reigns
The free Internet access model works in Europe due to a quirk in the telecommunications framework that allows phone companies to share revenue from local phone calls. In the United Kingdom, the 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 United Kingdom pay between 1 pence (2 cents) and 4 pence per minute in local telephone charges.
To compensate for the phone charges, companies such as Prudential, Britain's largest insurer; Barclays, the second-largest bank; W.H. Smith, the largest book retailer; Tesco, the largest food retailer; and the Arsenal Football Club removed subscription fees. Even British Telecommunications, the country's largest phone company, scrapped its pay-as-you-go service in favor of a free one.
The model has been copied by other European companies, such as Germany.net in Germany, Kingfisher in France, Tiscali in Italy, and Econophone, Sunrise, and Span in Switzerland.
European businesses, from phone companies to book retailers and banks to sporting clubs, are scrambling to offer free Internet access and muster enough users to attract advertising money and commission on sales through their sites.
"Providing free access is quickly becoming the cost of doing business on the Internet," said Nick Jones, an analyst with Jupiter Communications. "It is not an extra feature."
Switching to a free model, however, is too costly an alternative for AOL. Subscription fees accounted for almost 85 percent of the Dulles, Virginia-based company's $1.8 billion worldwide revenue in the first half of fiscal 1999. It argues that it takes more than just a free service to attract users.
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