AOL celebrates a flat-rate coup

From...

by Chris Nuttall

(IDG) -- AOL, the world's largest consumer ISP, won a crucial battle last week in the war for global supremacy when the U.K. and Germany decided to adopt its model for unmetered Net access.

The establishment of AOL's wholesale telecoms tariff, Friaco (Flat Rate Internet Access Call Origination), means the company has a chance to catch up with European rivals such as Freeserve, which have recently taken the initiative.

Last week, the U.K.'s telco regulator, Oftel, ordered British Telecom to offer a flat-rate wholesale price to ISPs across its network from February 2001.

Almost immediately, the German regulator told Deutsche Telekom (DT) to do exactly the same - with the same deadline.

MORE COMPUTING INTELLIGENCE

IDG.net home page

The Standard.com

TechInformer: The Thinking Internaut's Guide to the Tech Industry

Best things online may not be free for long

New tricks arrive at the old box

Reviews & in-depth info at IDG.net

E-BusinessWorld

Industry Standard email newsletters

Questions about computers? Let IDG.net's editors help you

Industry Standard daily Media Grok

Search IDG.net in 12 languages

News Radio

Fusion audio primers

Computerworld Minute

AOL used its bargaining muscle with network operators to devise a wholesale flat-rate price before anyone else. And Friaco has been favored after a concerted effort by AOL to bring political and legal pressure to bear, backed by the work of a crack team of economists.

The campaign began more than three years ago when AOL, in a clever marketing gimmick, offered to connect Europe's parliamentarians to its online services "to increase policymakers' awareness" of the Net's impact. The move, of course, also raised the company's profile in their eyes. Last year in the U.K., AOL set a team of economists to work on a wholesale-tariff model to allow unmetered access. They came up with Friaco, which Oftel accepted in May and has now ordered BT to adopt.

AOL, with its subscription business model, has suffered a rough couple of years in the U.K., mainly because of the emergence of the subscription-free movement.

The crunch came when Freeserve worked out a way of exploiting the current regulatory setup to offer Net access without a monthly fee. Freeserve worked by tapping a share of the "interconnect" revenues earned by its network provider Energis (EGS) when users dialed up the Freeserve service from a BT phone line.

Freeserve transformed the market by registering double the number of AOL subscribers within weeks of its launch in September 1998. The company's staggeringly successful model was imitated by scores of others and seriously eroded AOL's market share.

"When Freeserve (FREE) arrived, we were too slow to react," admits an AOL spokesman in the U.K. "A whole bunch of people suddenly came on to the Net, but it took us nine months to come up with Netscape Online."

In fact, AOL's own subscription-free service was launched nearly a year later. But by then, AOL's margins had suffered. In June, it had been forced to cut its top subscription level from £16.95 ($24) to £9.99 ($14) a month. Industry analysts said the move was inadequate.

But the company had begun testing an unmetered package. In March, it launched its "Stop The Clock" lobbying initiative in Europe.

This month, it announced that it could provide an unmetered service to anyone who wanted to subscribe - and also revealed that its U.K. membership had passed a million for the first time.

With Friaco, AOL is taking the battle for dialup customers back to the "free" ISPs in Europe.

However, the focus is now likely to shift to broadband access and getting the Net across a range of devices, such as mobile phones.

"AOL needs to work out its broadband strategy and widen its reach through interactive TV," says Shobhit Kakkar, ISP analyst with Forrester. "Its unmetered-access offering will be great for customer acquisition, but in the long term, broadband and delivering over a multiplicity of devices will be key."

FTC delays AOL-Time Warner decision
November 13, 2000
AOL asks appeals court to make 'forward-looking remedy'
November 3, 2000
AOL executive expounds on the wired life
October 30, 2000
A first look at AOL 6
October 26, 2000
AOL, Time-Warner urge FCC to leave AT&T out of debate
October 12, 2000

Deutsche Telekom deflated by flat-rate ruling
(The Industry Standard)
NTL announces free Net access plan for UK
(IDG.net)
DSL providers seek level playing field
(NW Fusion)
Excite@Home launches software service
(PC World)
Cable industry adds 690,000 modem customers
(InfoWorld)
Future is up in the air for 1stUp.com
(The Industry Standard)
Best things online may not be free for long
(PC World)
New tricks arrive at the old box
(PC World)

AOL
Oftel

Note: Pages will open in a new browser window

External sites are not endorsed by CNN Interactive.