Microsoft Gives It Away in the UK

Microsoft set a precedent this week by announcing on June 8th that it would begin giving its subscribers in the U.K. free Internet access — a trend that some say could eventually spread to the United States.

The move was fueled by Freeserve, an Internet-assess service owned by Dixons Group Plc, Britain’s largest electronics and appliance retailer, that began to offer free Internet access to residents of the U.K. As a result — in just three months — Freeserve has skyrocketed into first place with more than 1.4 million users in Britain.

Microsoft was forced to make its decision after it lost about a fifth of its 150,000 subscribers this year in England, analysts say. Some industry experts also speculate AOL Europe — which has about 600,000 accounts — will soon follow Microsoft’s lead.

In an interview with Bloomberg, Christopher Hill, AOL’s executive vice president of corporate development, alluded to the possibility when answering a question about the company’s recent 40 percent price cut of its flat-fee in the U.K. to 9.99 pounds or $16 (US$).

“That does not mean we will never launch a free ISP or make that an option,” Hill said. “We may very will do so.”

The Stakes Are High

Analysts say free access is simply the admission price in order to be a player in the U.K.’s burgeoning e-commerce marketplace. Buying and selling of goods on the Internet in Britain is expected to grow from $257 million in 1998 to $13 billion (U.S.) by 2001, according to Forrester Research, Inc.

Charges by the Minute

Another reason free access is necessary to stimulate e-commerce in Britain is the fact U.K. telephone companies charge Internet surfers by the minute to use their lines. Moreover, despite consumer protests, it wasn’t until last week that British Telecommunications Plc, the U.K.’s largest phone company, agreed to offer its customers hooked to an ISP a flat fee of 11.75 pounds during weekend instead of billing per minute usage.

How Could This Affect U.S. E-Commerce?

Many experts predict one day soon, the U.S. Congress will embrace the movement among some politicians and companies to begin taxing or allowing telephone companies in the U.S. to also begin charging a usage fee. Supporters of such a tax contend it’s the only fair way to help telecom companies pay for the necessary infrastructure to handle the coming tidal wave of Internet users.

That’s why some analysts say what’s happening in the U.K. is so significant. If Microsoft or AOL find it’s impossible to make money using the free model — it could be a prelude to a bigger problem they could both face back home.