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Tuesday, May 11, 1999 Published at 09:13 GMT 10:13 UK


Sci/Tech

AOL cuts prices in Net war

AOL emphasises ease of use and access to content

By Internet Correspondent Chris Nuttall

AOL is cutting prices for its online service in the UK after coming under increasing pressure from the free Internet access revolution.


AOL UK MD David Phillips on Net competition
Unsurprisingly, given the success of its subscription-based service on a global basis, AOL is not following traditional UK rivals such as Virgin Net in dropping monthly fees.

Instead, it will launch a new £9.99 per month unlimited-use pricing plan on 1 June. It also has sent out CDs to a test group of non-subscribers offering them pricing plans including unlimited access on a freephone 0800 number for £14.95 a month.

Industry gives move the thumbs down

Reaction to the move in the industry was negative.

Philip Lakelin, a senior analyst at telecommunications consultancy, Analysys, said AOL was "swimming against the tide" and needed to rethink its strategy.

The Register online news service commented: "Net users will vote with their feet unless AOL UK realises that the pricing model that has worked so well for them in the US is doomed to fail in the UK and Europe."

AOL denies freeserve prompts cuts

AOL stands to lose nearly £7 a month from those on its current pricing plan of £16.95 for unlimited use. However, it hopes the new price plan will encourage light users, paying £4.95 per month for three hours and £2.35 for each additional hour, to step up to the package.

It also feels it can continue to add to its 600,000-plus members at the new price and reduce the churn rate of people leaving the service.

AOL UK's president and managing director, David Phillips, denies the announcement is in response to the threat from Dixons' freeserve and the host of other companies now offering subscription-free Internet access.

Revenue 'five to 10 times' freeserve

"The UK market is poised for enormous growth, and we believe this new unlimited use plan will attract new members and encourage existing members to take advantage of unlimited access. The result will be dramatically increased usage of the AOL service, which will further accelerate the growth of e-commerce revenue," he said.

Mr Phillips told BBC News Online that AOL UK was generating five to 10 times the revenues of freeserve through subscriptions, e-commerce sales and banner ads.

The company has also announced deals with the auction site, eBay, and the Website hosting company, Verio, to link through to them in relevant AOL interest areas.

Free local calls campaign

Mr Phillips also said he would be supportive of the efforts of consumer groups planning an Internet strike in June for a free local calls telecoms structure to be put in place. Such a move could wreck the business models of AOL's free rivals.

"We are working towards an all-inclusive pricing that will allow users to turn off the meter. You won't see this become an e-commerce, advertising medium until you can turn off the meter on local call charges.

"We think the current situation is the result of a distorted regulatory environment. We hope to push Oftel [the telecoms regulator] to do things a little bit quicker and respond to the faster pace of Internet time.

"Marks & Spencer don't charge you for browsing around their store, that would look absurd. If we can turn off the meter on local calls that would really expand revenues."

Mr Phillips said AOL had been lobbying Oftel officials, the Department of Trade and Industry and other agencies on the need for a flat monthly fee for local calls.

Oftel has supported the continuation of the free-access model and has so far shown little enthusiasm for the US model of free local calls.

AOL 'swimming against tide' -analyst

"AOL has been swimming against the tide for some time now, hoping that the subs-free ISP model will just go away at the same time as petitioning governments to introduce unmetered telecoms for ISPs," Analysys's Philip Lakelin told BBC News Online in an e-mail comment.

"This smacks of viewing Europe through the spectacles of AOL's domestic market. But whilst unmetered telecoms is happening in Europe to some extent, for example, with screaming.net, it is happening *alongside* subs-free access, and it is subs-free access that is becoming more entrenched.

"AOL continues to claim that providers like FreeServe can't give:

a) the same quality of service. But they can: in the UK, UUNET is AOL's main infrastucture provider, and UUNET also provides the infrastructure for the subs-free operations of Arsenal and Gateway Computers. FreeServe's providers are Planet and Energis, both of whom are robust network operators. FreeServe has now issued a writ against AOL for slander, based on the claim (which AOL denies) that AOL's telesales people have been warning customers that free ISPs will give them lower QoS.

b) the same level of content, but whilst this is true now it won't necessarily be true in the future - FreeServe's portal keeps on getting bigger, and the more subscribers it gets (now over twice as many as AOL in the UK), the more attractive it will be to content providers. At the same time, it shouldn't be forgotten that a lot of the people going online with the subs-free providers don't want all that content - they just want e-mail and a fast connection.

c) don't have the same trusted brand as AOL, but with companies like Dixons, WH Smith, Tesco, Barclays, and Virgin now offering subs-free services in the UK, this can hardly be true; these brands have been around a lot longer than AOL.

"Just cutting the price of the monthly subscription fee seems not to be a radical enough reaction to the prevailing market conditions. Maybe it is part of a staged turn-around of their strategy, which has a certain rationale - no need to cannibalise their current user base straightaway - but may not be quick enough. By June, the market will have moved on yet more and AOL may find themselves having to cut prices again.

"The subs-free model is not just attracting new users, it is causing significant churn amongst the traditional providers - MSN has admitted that its UK subscriber base dropped from 150,000 to 125,000 between January and April 1999."



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