AOL nabs million U.K. users, widens one-fee Net plan

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LONDON, England (Reuters) -- AOL fought back for Internet influence in Britain on Wednesday, saying it had clocked up a million users and would open its popular flat-fee Internet service to everyone.

Two months ago the Internet service provider (ISP) launched the 15 pounds ($21) a month unmetered service only for existing users, a step which it said had prompted a significant jump in new subscribers who had hoped to join the queue.

"This is the fastest uptake we have ever seen for a pricing plan," said AOL Europe spokesman Matt Peacock.

He said hundreds of thousands of users had switched to the flat-fee scheme from their subscription plus call charge plan.

AOL had for months given no figures for U.K. subscribers, sparking speculation it was falling behind in the race for U.K. Internet access that is led by Freeserve.

Freeserve has twice as many users, and its two million includes a recent boost also due to flat-rate access, which allows users to stay online for as long as they want.

It subsidizes its 10 pounds ($14) a month service that it buys from British Telecommunications using a different tariff that exposes it to risk -- the longer a user stays online, the bigger the loss. Some heavy users have been banned.

AOL says it will make a profit and promised no one would be kicked off the service unless they were reselling it for profit, for example in an Internet cafe.

"You can't say to people, here is something you can use as long as you like -- and then say they can't," Peacock said.

AOL said it had hammered out a deal with telecoms companies, which meant it could offer the service without making a loss.

This tariff is known in industry jargon as FRIACO, one that AOL says it devised and which telecoms regulators forced BT to accept earlier this year to promote competition.

"Other European countries are looking at the U.K. with great interest, and the Dutch have followed suit," said AOL's Peacock. "FRIACO is reproduceable in every market in Europe."

Rival ISPs are sure to follow.

"We intend to have our first customers on FRIACO from the end of the year," said a Freeserve spokesman who pointed out nationwide FRIACO was not yet available.

AOL agreed but said telecoms partners were offering it a similar flat-rate deal in those areas not yet connected.

AOL U.K. is part of AOL Europe that is a joint venture between AOL Inc., which is merging with Time Warner and Bertelsmann. Time Warner is the parent company of CNN.com.

While Freeserve loses money on its unmetered package, many other high-profile entrants into the market have since retreated after being burnt by huge demand and high costs.

The most notorious was AltaVista, which sparked a Web access war in the spring by offering a low-price service that it later withdrew before it even got off the ground.

AOL said Internet use on its unmetered package was around an hour a day, three times the U.K. norm and similar to U.S. levels.

It said that as in America, users spent 85 percent of their time within AOL's own content and the rest on the Net.

The longer a user stays online, the more chance retailers and advertisers have of making money from the Internet.

"With FRIACO you have to have a billing relation with the customer, as we already do, and a customer relation is how you build a business," said Peacock.

"Others will have to build a billing system. Some ISPs will do that. Many others will struggle."

AOL had seemed to lose ground swiftly in Britain after Freeserve was set up in 1998 to offer Internet access for the cost of a phone call, abandoning the monthly fee AOL had used.

AOL resisted following suit for many months during which Freeserve established the market lead it still has, and eventually launched Netscape Online last year.

AOL also operates Compuserve and Netscape Online. Across Europe the group has signed up 5.4 million households.

Copyright 2000 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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