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Britain faces Webolution
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April 5, 1999: 12:52 p.m. ET
Free Web access craze takes many forms as soccer club, grocer join the act
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LONDON (CNNfn) - What do a soccer club, supermarket, book chain and electrical retailer have in common?
In Britain, they all are Internet service providers. And their "free access" services are pulling more and more people onto the Web.
That's putting the United Kingdom in the forefront of Europe's Internet evolution, but not without some controversy.
"It's not a sustainable business model, because the value proposition there is not fulfilled," Andreas Schmidt, the president of AOL Europe, told CNNfn.com in a recent interview. "We know our subscribers," he said, but "on a free Internet service you can sign up as Mickey Mouse. We don't know how many Mickey Mouses are out there."
AOL has brought Internet service into 2.7 million households in seven European countries -- a 25 percent market share -- in just a few years.
Yet Schmidt chafes at any suggestion that the same people who sell you lamb chops, hawk the latest Danielle Steele novel, or shoot penalty kicks also can offer quality Internet service with a personal touch.
An electrical retailer started it…
In recent months, however, Dixons -- an electrical retail giant better known until recently for Panasonic stereos than page hits -- has snatched away AOL's pole position in Britain's Internet access market.
Last October Dixons mounted a stealth assault on cyber business-as-usual. Seizing on a little-known proviso in Britain's telecom regulatory code, it pioneered Freeserve, Europe's first Internet access service not to charge a membership fee of any kind.
Six months later, Freeserve is the new leader of Britain's Internet market. It boasts an estimated 1.5 million subscribers, of whom about 40 percent are completely new recruits to cyberspace.
The stock market catches on
Investors liked the move. Since early October Dixons stock has surged more than 150 percent to 1,313 pence, against a rise in London's blue-chip FTSE 100 of about one- third.
Inspired by Dixons' phenomenal success, a horde of copycats have leapt on the bandwagon, straying far beyond their usual vocations to try their hand at virtual business.
Among the more prominent is Tesco, a major supermarket chain, and Arsenal, a three-time British soccer champion that has registered 4,000 members since its launch Dec. 20.
"Dixons sparked it all off. With Dixons the whole model changed. It was a leap of faith," said Clive Keyte, the director of electronic commerce at ICL, a London-based company that helps companies design and maintain websites.
…and before long, a soccer club…
Maverick U.K. entrepreneur Richard Branson has also joined the fray, handing out free "Virgin" Web-access kits to customers prowling the aisles of his music and entertainment empire.
Britain's special arrangement
What makes this Internet give-away spree possible is a regulatory arrangement unique to the United Kingdom. Known as the "Numbers Translation Agreement," it allows Internet service providers to receive small payments from terminating operators in return for providing Web traffic.
Under a typical scenario the originating operator, normally British Telecom or Cable & Wireless, is entitled to recoup the cost of the call, plus a small premium. The terminating operator -- usually a smaller telecom company that carries the call from BT or C&W's network to its final destination at the site server -- is entitled to add fees to the phone bill to cover its services.
The terminating carrier then can make contracts with Internet service providers. The terminating carrier provides the connection, the ISP provides the traffic.
For fledgling Internet service providers pass-along revenues from terminating carriers, coupled with advertising revenues, have effectively funded the "free" web services.
That provides a ready vehicle for companies looking to spice up their "brand" image.
But is it really free?
"Everyone appears now to be offering a free site," said Daniel Flesch, the manager of Arsenal's Internet site, explaining why one of the country's most famous soccer teams felt the urge to offer its fans free entrance to the World Wide Web. "It doesn't make sense to make people pay."
Or does it?
Lost amid the hoopla over the free-Internet craze, AOL's Schmidt asserts, is a more sober debate about whether free Web services necessarily offer better value. Or, for that matter, whether free access is a clever smoke screen for the relatively high phone fees Europeans are charged in markets dominated by one, or at most two, big companies.
…and a supermarket …
In the meantime, those major telephone companies are eyeing the traffic generated by the so-called free Internet services.
"We are incurring large costs with not much return," said a BT spokesman. "…We would like a pricing formula that gives us a fair return on our assets and investments."
BT, which handles roughly 80 percent of Britain's local phone traffic, made its case to the government.
"The originating operators came to us and said we're carrying all these calls across our network and it's clogging us up, and we're not getting anything," recalled Kevin Mochrie a spokesman at Oftel, the British telecommunications watchdog.
Last month, in a move seen as a small victory for the ISPs, Oftel decided to leave the current pricing structure intact. At the same time, Oftel promised to revisit the issue in 2001.
"We believe that BT is getting enough," Mochrie said. "BT is usually sending the people bills for this free Internet access. BT should be introducing new price points which are below the current rate call."
…and a bookstore were all offering free Web access!
-- by staff writer Douglas Herbert
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