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AOL may launch free Europe brand

Hoping to jump on the "free" ISP wave hitting the United Kingdom, America Online's European division is considering offering a subscription-free service.

Hoping to jump on the "free" ISP wave hitting the United Kingdom, America Online's European division is considering offering a subscription-free service.

AOL still is not planning to waive the fee for its AOL U.K. online service, as it has said previously. Instead, the company is exploring starting a new Europe-based division that will offer a subscription-free Internet access service that will not carry the content from AOL's proprietary service or its brand.

AOL and its European joint venture partner, Bertelsmann, could roll out the service in the next three to four weeks, an AOL spokesman told Reuters.

"In AOL U.K., we are evaluating the next steps in the evolution of Internet business models," AOL Europe spokesman Bill Burrington said. "One could logically conclude that we are looking at some type of free business model."

Free ISP services such as Dixon's Freeserve and Virgin Net have caught on like wildfire in the United Kingdom because they offer Net access without subscription fees. AOL U.K. users pay about $16.25 per month for access to its online service. But that fee is on top of local phone charges, which are metered by the minute.

In the United States, local phone calls are free, allowing ISPs to charge a monthly subscription rate for unlimited access. In the United Kingdom, Net users tend to stay online for less time because of the metered phone charges.

But free ISPs in the United Kingdom do not charge subscriptions. Instead, they make money by sharing local phone call revenues with a backbone provider.

While this model may not always be cheaper for consumers, it has certainly become popular. Freeserve has signed on 1.5 million users since it launched in September, according to estimates from research firm Jupiter Communications. In comparison, AOL U.K. has 600,000 paying subscribers.

If AOL decides to introduce a free ISP service, it would not be AOL- or CompuServe-branded, according to AOL spokeswoman Ann Brackbill. Rather, AOL Europe would launch a separate brand to take on free ISPs and keep AOL and CompuServe as "premium" subscription services, she said.

"We are studying it and seeing if it is sustainable and makes sense," she said.

Though it plans to stick with subscriptions in the United Kingdom, AOL is considering a toll-free dial-up service in the region to lower overall connection costs, sources said. AOL and perhaps a network partner would subsidize phone charges but continue charging subscription fees.

But AOL seems unconvinced that offering free access is the best way to go.

"The free model is the model du jour in Europe, but we don't think it is going to last long term," Burrington told Reuters.

Reuters contributed to this report.