AOL to launch free U.K. Internet service

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LONDON--The U.K. phenomenon of free Internet access took a dramatic twist on July 19 when online services giant America Online unveiled plans to offer its own free Internet service, called Netscape Online, in the country this August.

The new free ISP will be launched by AOL Europe, the joint venture between AOL and Germany's Bertelsmann, Europe's biggest media group.

Netscape Online, so-called because AOL now owns popular Internet browser Netscape, will be targeted at businesses. It will complement AOL's other subscription-funded ISP brands -- AOL U.K., which is targeted at consumers, and CompuServe, which serves more than 400,000 U.K. subscribers and is designed for the professional community.

AOL Europe's move raises the ante in the U.K., where rival Freeserve, the world's first commercially successful free Internet service provider, took the market by storm by snapping up more than one million subscribers in its first six months of operation. Freeserve launched last September.

The growth rate of Freeserve, a subsidiary of the Dixons Group, the U.K.'s biggest electronics retailer, has prompted a spate of local fee-based ISPs, such as Demon Internet, to stop charging subscribers. In response, the U.K. has become Europe's fastest growing Internet market with a 17% penetration, according to research group NOP. Germany, which previously had the largest penetration rate, has been pushed down to second place with 16%.

By March, Freeserve had toppled AOL U.K. from its position as the U.K.'s biggest ISP with more than 600,000 paying customers. AOL U.K. publicly pledged never to follow Freeserve and take the free-ISP route, arguing that customers were willing to pay for AOL's portfolio of exclusive and original content.

Although the launch of Netscape Online has taken the industry by surprise, it was inevitable. Freeserve's business strategy is proving to be very effective. Analysts predict the service will be valued at more than $2 billion when it is floated on the London Stock Exchange next month.

This fall, AOL Europe is scheduled to introduce AOL 5.0, the next generation of the AOL software, and CompuServe 2000, an upgraded edition of the CompuServe software, is due out in September.

"One of the great advantages of AOL Europe is that we are a multiple-brand company so we can successfully match our brand offerings to all significant market segments in every country we serve," says Andreas Schmidt, AOL Europe's president-CEO.

AOL remains the world's biggest ISP with more than 20 million paying customers and is the largest in Europe, with nearly three million subscribers.

Copyright July 1999, Crain Communications Inc.

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