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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: Craig A who wrote (16618)	5/11/1999 4:11:00 PM
From: Roy F	Read Replies (1) \| Respond to of 41369

ANALYSIS-AOL, freebies clash in UK cyberspace May 11, 1999 03:53 PM By Kirstin Ridley LONDON, May 11 (Reuters) - Britain is turning into a battleground for two rival models of pricing Internet services as U.S. giant America Online Inc AOL heads for a showdown with a raft of rival free service providers. In a stark contrast to the U.S., where subscription-based AOL is king, Europe has seen the birth of scores of companies that offer Internet access at no charge, leaving users to pay only for a local phone call. In Britain, around 70 Internet Service Providers (ISPs) offering free Internet access have cropped up since electrical retailer Dixons Group Plc pioneered the move with its Freeserve service last Autumn. With ISPs partly funded by a slice of the call charge, premium-rate helpline charges and revenues from advertising and electronic commerce, these start-ups have made life tricky for traditional subscription-based services such as AOL. AOL has more than 600,000 British consumer customers but has been overtaken by Freeserve which says it has over 1.5 million users. Industry experts believe this week's 45 percent price cut for British Internet access by America Online's subsidiary AOL Europe may be just the first step in a battle to face off the growing army of rivals. The newcomers have given a wake-up call to former market leader AOL, attacking its former cosy industry in which it collects consumer subscriptions as well as revenues from advertising, electronic commerce and call charges. Analysts said on Tuesday that AOL Europe's new monthly price deal of 9.99 pounds ($16.2) for unlimited Internet use, plus the cost of a local call, could to pave the way for a more radical bid to re-establish AOL as Britain's market leader. Speculation is mounting that AOL, a joint venture between America Online and German media giant Bertelsmann AG , is harbouring plans to offer Internet access through an 0800 freephone number -- ending nasty phone bill surprises for users. Advocates of the Internet argue its development in Britain is being curbed because access calls are charged at local rates, rather than the U.S. model where local calls are free. AOL has so far declined to comment, saying only that it is testing several new pricing plans, including freephone access to the Internet for 14.99 pounds per month. A spokeswoman said results of the test will be not be known for a few months. Although Internet penetration in Britain is currently low -- at between 14 and 17 percent of households -- it is growing. And analysts believe heavier users or families with children who log on for more than 30 minutes per day easily spend more than 15 pounds per month on call charges alone. AOL insists that only subscription-based business models are sustainable but experts believe it needs to counter its competitors' success with more than price cuts. "I believe they are seriously considering introducing an 0800 unmetered call service and that this price cut in their standard service should be seen in that context," said Adam Daum at Inteco Corp, the British-based market reseach consultancy. "But if this price cut is their only response to their subscription-free ISP phenomenon, then it will not be enough to regain market leadership," he added. ((London Newsroom +44 171 542-7987, fax +44 171 583-3769, uk.equities.news@reuters.com)) ($1=.6169 Pound) REUTERS