World Telecommunication Day 1999 |
In September 1998, Dixons took a giant leap for a British electrical goods retailer and launched Freeserve, the first ''free'' Internet access service in the world. After only three months, it had almost a million subscribers and, a year later, has around 1.5 million users, despite a high churn rate. There is no joining fee or monthly subscription to pay, but customers must send a least one e-mail a month to keep their accounts open and must pay the phone charges for accessing the Net.
Martin Browne of Intec Systems, an interconnection software developer, explains how the economics work: ''For every pound that British Telecom receives for the use of one of its phone lines to call Freeserve, it is obliged to pay the long-distance telephone company Energis 70 pence for terminating the call. Energis is Freeserve's partner, and it provides the backbone infrastructure and nodes. Energis then divides the income it receives from BT with Freeserve.''
This demonstrates one of the rules of the telecommunications industry: If a service is made widely affordable, demand for it will soar. Prior to the arrival of Freeserve, Internet use in Europe was growing at a far more modest rate than in the United States, where local calls are virtually free. European consumers must deal with the double-barrel of high local phone costs along with relatively high charges from Internet service providers.
Freeserve's success has attracted a great deal of publicity and spawned a list of emulators and variations on the theme. Emboldened by Freeserve's success, some companies in Britain are going even further. Mutual.net is promising subscribers shares in the company if and when it goes public. Freeserve's hugely successful IPO seems to make this an interesting idea for potential subscribers.
Kingfisher, a British owner of retail chains, and the French Group Arnault are looking to bring the free service concept to the Continent with their recently introduced service, LibertySurf. The new service is being distributed through the consumer electronics chain Darty in France, which will use it to sell electronics goods on-line.
The world's largest Internet access provider, America Online, is now looking to catch up via a complete restructuring of its European operations. Simon Preston, a director at the British telecommunications provider Telinco, asks: ''Will AOL end up having to risk cannibalizing its own fee-paying customer base?'' AOL recently entered deeper into the fray by announcing it will charge its British subscribers a few pence a minute at any time of the day for their call to the local AOL access number. AOL still, however, maintains a monthly unlimited service charge of 10 pounds ($16). It has called free service ''an unsustainable business model,'' echoing the opinion of many industry analysts.
France Telecom recently proposed a similar idea to French regulators, asking for free subscriptions to Internet services. Customers would pay about five cents a minute for connection time, regardless of what time of day they logged on. This could promote use of France Telecom's popular Wanadoo service, as well as encourage Internet use in France.
Both Mr. Browne and Mr. Preston question Internet service providers' being able to rely on sources of income other than shared call revenue, at least in the short term. Mr. Preston says: ''Those who are offering free calls are very vulnerable to pricing changes in a highly competitive market. Freeserve is forecasting that in three years' time, it will gain an average of around $30 a month per subscriber from electronic commerce activities. Even assuming 25 percent profit on that income, it would still only pay for around one month of free access per user.''
The free Internet service provider market is a jungle for the service providers but a playground for consumers.
Annie Turner