America Online Inc’s half-owned European subsidiary, AOL Europe, could be about to buckle under the pressure of the wave of subscription-free internet service providers that is sweeping the continent and launch a subscription-free service itself. The move would represent a massive abandonment of principles for the firm, which has repeatedly vowed it would not play copycat to free ISP pioneer Freeserve, going as far as to vocally support campaigns which would abolish such services.
AOL spokesperson Bill Burlington told Reuters Monday that the ISP was evaluating the next steps in the evolution of the internet and looking at some type of free business model. The London Stock Exchange took this to mean a high-profile Freeserve-copycat move was imminent, and shares in Dixons Group Plc, Freeserve’s owners, dropped sharply. Freeserve and scores of other ISPs have no subscription fees and instead take revenue from a cut of the phone bill to their services, through partnerships with network operators. Dixons shares closed down more than 4% Monday, but were back up by 5% on Tuesday after the group announced its plans to heavily market the flotation of Freeserve to its customers.
Since it became apparent AOL could not survive for long in a market dominated by services far cheaper than it offered, it has been trying hard to think of a competitive strategy. It did not want to use the Freeserve model, apparently because it does not want to devalue its brand image by doing away with subscription charges and becoming just another ISP. It is known that AOL is piloting a scheme to provide unmetered dialup internet access for a flat monthly subscription fee, which, if toll-free on a 24-hour, 7-day basis, would almost certainly have Freeserve’s customers sprinting to jump ship and join AOL.
This pilot comes as part of AOL’s continuing campaign to move its US business model into Europe. In the US, few pay per-minute charges for the local call that connects them to the internet, but they do pay subscription fees. In Europe, the reverse is true, which has allowed ISPs like Freeserve to emerge. AOL points to the greater usage of the net in the US, and has been lobbying European Union governments to regulate against metered local calls, going so far as to become a corporate sponsor of the Campaign for Unmetered Telecommunications, which staged a 15-country Europe-wide net strike two weeks ago.
But now, AOL UK’s managing director David Phillips says the firm is looking at a variety of models, including the so-called ‘free’ services model as an addition to our AOL and Compuserve brands, and would launch such a service if it proves to be viable. It is still unclear whether AOL means a Freeserve-style model or not, although Phillips’ statement would seem to suggest that. If so, it would mark a distinct U-turn for the troubled company, which could find itself campaigning against the very loophole that allows one of its services to survive. Unless, of course, it abandons that particular principle.
Running parallel services, one free, one not, has been achieved by British Telecommunications Plc, which also complained vociferously about Freeserve’s business model before sheepishly launching a copycat service. BT’s ClickFree subscription-free service now runs quite happily alongside BT Internet, which is subscription-based but offers toll-free dialup on weekends. If AOL decides to overhaul its pricing strategy, rather than offer minimal cuts in its subscription fee as it did last month, then a mimic of BT’s dual approach would appear likely.
