By Kevin Murphy
Last week saw the launch of screaming.net, a UK internet service provider which promises to blur yet again the definition of an ISP and revolutionize consumer internet access in Europe. Unlike previous ‘free’ ISPs, which charge no subscription but take a share of the per-minute charge users pay for connecting via the phone lines, screaming.net offers free evening and weekend internet dial-up.
At the same time, Internet Technology Group Plc announced its plan to turn every brand name that wants to be one into an ISP. Another company is giving charities and schools the opportunity to make money using the subscription-free ISP model. And with dozens of firms already offering subscription-free access, the UK finds itself in the middle of an internet frenzy.
The revolution started with the X-Stream Network, which started to offer advertising-funded access with no subscription fees early last year. X-Stream’s was a low-key operation, but it spawned several imitators. Then, in September, Dixons Group Plc, the UK’s largest electrical retail chain, exploited a loophole in the UK’s telecom regulations to launch Freeserve in partnership with Energis, a new UK carrier spawned from the utilities sector. By teaming with Energis, Dixons had found a way of offering free internet access, while still making a margin from the line fees charged by its carrier partner. At the same time, in Dixons, Energis had discovered an ideal partner to spearhead a consumer marketing effort, which would help it scrape of a larger share of the 80% of UK domestic telephone charges which still go to British Telecom.
Using Internet Explorer Administration Kit from Microsoft Corp, which allows companies to distribute vast numbers of copies of IE for free, and distributing the software for free via its ready-made network of over 350 stores, Dixons start-up costs were drastically reduced. And because most users would connect from a BT line, BT would take care of the billing, reducing running costs dramatically. Thus Freeserve was born. Within four months it attracted 1 million subscribers, relegating America Online to second place in the UK ISP league, and doubling Dixons’ share price in the process. The group now plans to float off the ISP for 2.5bn pounds ($4bn) later this year.
There are now more than 40 similar services in the UK, boasting 2 million subscribers, and more are launched every week. ITG, for instance, last week announced its Digital Community project, which signaled its move from a retail ISP to wholesaling ISP facilities to brand companies. This mimics BT’s Click proposal, which allows companies such as retailers to co-brand an ISP offering in the Freeserve model. ITG currently has three companies using its services. Laurence Blackall, CEO of ITG, said: We are entering an era in which major brands will dominate internet access at the consumer level.
The trick is to find the distribution model, the more successful free ISPs are all large national chains or high-circulation newspapers and magazines. Voss Net Plc, has a similar business model to ITG, but uses charities and schools as distributors, in exchange for giving a further cut to the dial-up revenue.
The latest stage of the price war comes from Tempo Plc, a 44-branch electrical retailer, and LocalTel, a telecoms reseller. Their offering, screaming.net, launched Thursday with almost as much hype as Freeserve, due to the fact that there are no call charges to be paid between 6pm and 8am and at weekends. To take advantage of what in essence amounts to 100% free internet use (few consumers would use the net during business hours) subscribers must switch their phone line to LocalTel. Even that ‘catch’ has its advantages, as LocalTel says it charges 10% less than BT on most calls. The screaming.net portal is also splashed with advertising and Tempo offers, which should also create some revenue.
Despite the obvious popularity of the new wave of ISPs, they have not been without problems. In a benchmarking test conducted by Inverse Network Technology Inc reported last week, of four free ISP contenders only BT’s Clickfree service was classed as better than average for connection success rates. The huge strain on networks created by the ISPs has lead to lots of anecdotal evidence alluding to poor performance, of which Freeserve, as market leader, had born the brunt. AOL UK uses these stories as justification for remaining subscription-based, but its own performance in the Inverse survey was also unremarkable.
Screaming.net claims it will put a cap on the number of subscribers who can subscribe to its service, to avoid being plagued by allegations of lack of speed and capacity as Freeserve has. Due to Tempo’s small number of stores, 44 in total, getting hold of a registration CD has been difficult. On Thursday alone over 100 people were found queuing for CDs outside Tempo’s Oxford Street branch in London and 12,000 calls were logged by the registration helpline.
Basing an entire industry around a loophole is risky, but Oftel, the telecoms regulatory body, has been reluctant to close the gap. It published a consultation document in March suggesting that the regulation remains the same, but with an element of price competition on dial-up rates be introduced. Organizations such as the Campaign For Unmetered Telecommunications, which wants flat-fee dialup introduced in the UK, broadly welcomed screaming.net, but said the service was merely a first step… there are many issues it doesn’t touch, [such as] the lack of coherence in regulatory and Government policy.
