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AOL U.K. cuts phone fees
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September 27, 1999: 9:42 a.m. ET
Internet service giant will charge 1 pence a minute for access calls at any time
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LONDON (CNNfn) - AOL Europe announced Monday it is cutting the phone fees charged to users of its premium Internet service, marking what it called a "major step" toward flat-rate pricing that has made the Internet a mass market phenomenon in the United States.
Under the new price structure, subscribers who currently pay a monthly fee of 9.99 pounds ($16.40) for AOL's premium Web-access service would be charged only 1 pence (1.6 cents) a minute, regardless of the time of day, for their phone calls.
The phone fee cut represents a shot across the bow of AOL's biggest British Internet rivals -- many of whom tout themselves as "free" Internet access providers while in fact charging phone call fees of up to 4 pence a minute.
AOL believes this system inhibits wider Internet use in Britain by forcing Web surfers to restrict their online time to off-peak hours of the day, when telephone companies tend to charge lower phone fees.
AOL said its British subscribers spend about 17 minutes a day online -- a quarter of the time its American users spend surfing the Web.
The leading beneficiary of the free-access craze sweeping Britain -- Freeserve -- is also one of the biggest thorns in AOL's side.
Since its launch last September by electronics retailer Dixons, Freeserve has attracted nearly 1.4 million subscribers, overtaking AOL in the U.K. Internet market and touching off a copycat spree that has drawn football clubs, supermarkets, record stores and booksellers into the swelling ranks of British ISPs.
Hundreds of free ISPs in Britain
Today, there are an estimated 200 no-fee ISPs in Britain, which draw their revenue from a combination of advertising, e-commerce and phone call fees. But with phone prices bound to come down, analysts wonder how long many of these companies will remain viable.
Relenting to the pressure, AOL Europe, a joint venture between America Online (AOL) and German publisher Bertelsmann, rolled out its own free-access service in August, called Netscape Online.
The move marked a major strategic concession by AOL Europe's chief executive, Andreas Schmidt, who had previously called free Internet service as "an unworkable business model."
Yet after an initial surge in interest, the euphoria for the new services has begun to wane amid signs investors -- and users -- are becoming more discerning in their Internet tastes. In a maturing Web market, analysts say, investors are likely to put a greater premium on content.
Freeserve itself said Monday it was launching a plan that would allow users to earn up to 10 free hours of Internet calls a month.
The numbers of free hours subscribers to the Freeserve Time service receive will be based on the amount spent monthly on phone calls.
AOL said its pence-a-minute plan will enable its U.K. users -- estimated at 600,000 -- to freely choose when they go online.
"AOL members now will be able to make the Internet more central to their everyday lives, without any of the hassle and hidden costs that users of self-proclaimed 'free' ISPs experience with large Internet telephone acees and customer support charges," the company said in a statement.
AOL said it had negotiated special agreements with some telecom providers that will allow it to pass on savings to subscribers in the form of the lower fees. Subscribers will continue to pay a monthly subscription charge of 9.99 pounds for the premium service, or an annual fee of 99.99 pounds.
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AOL U.K.
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