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AOL competes abroad

The cost of logging on to the Net is falling in countries outside the United States as foreign markets get wired and competition heats up.

Paul Festa Staff Writer, CNET News.com
Paul Festa
covers browser development and Web standards.
Paul Festa
3 min read
The cost of logging on to the Net is falling in countries outside the United States as foreign markets get wired and competition heats up.

In the latest example, AOL Japan has initiated a three-tiered pricing scheme that the company contends could save heavy users almost 80 percent on their monthly bill.

The Japanese version of America Online launched in April, offering its service for 980 yen ($8) per month for three hours, with additional time available at 480 yen ($4) per hour. With the new fee structure, users will also have the option of paying 1,900 yen ($15) for 19 hours or 4,800 yen ($38) for 50 hours.

The user who logs on for 50 hours now stands to save nearly 80 percent on his or her monthly bill, according to AOL Japan. The 15-hour plan offers a 72 percent savings.

Analysts speculate that AOL is redoubling its efforts to get ahead in the Japanese online service market, where it trails market leader CompuServe licensee Nifty-Serve.

"AOL has been lagging there," said Kate Delhagen, an analyst with Forrester Research. "They haven't grabbed hundreds of thousands of users in a market where they should be able to."

Delhagen noted that other Japanese service providers have cut prices in recent months and that Nifty-Serve is expected to announce a flat-rate pricing plan similar to that of many U.S. service providers, including America Online.

AOL has not disclosed its membership numbers in Japan. Delhagen estimated that AOL Japan had somewhere in the neighborhood of 100,000 subscribers. Nifty-Serve boasted 2.5 million members as of last month.

Though AOL Japan faces a significant challenge in catching up to its Japanese competitors, it has a hot market in which to do it. According to research firm IDC, Japanese ISP connection contracts numbered just under 2 million in 1996 and are expected to rise to more than 9 million by 2001.

Japan is not the only market in the Asia/Pacific region on AOL's mind. With German media conglomerate Bertelsmann, AOL is planning an online service in Australia, one of the fastest growing Internet markets. The Australian venture, announced last month and slated for next year, will compete with OzEmail, the Sydney-based Internet service market leader in Australia. Some industry watchers expect AOL's entry into the market to spark price cutting.

CompuServe, with members in 185 countries worldwide, has kept its pricing structure fairly stable over the years, charging overseas users approximately $10 per month for five hours and about $3 per month for each additional hour. The online service, which will merge with AOL and Internet service giant WorldCom, does not offer a flat-rate pricing plan for its members outside the United States and Canada. But the company claims that has less to do with the position of the Internet service markets than with regional telephone habits.

"Even with flat-rate pricing, Europeans are still paying by the minute to phone companies, so they're still on the meter," said CompuServe spokesman Steve Conway. "At risk of overgeneralizing, I think it's accurate to say that Europeans are more self-educated not to stay online longer than needed."

Conway stressed that CompuServe pricing has remained "relatively the same" over the past five years and said he did not expect that to change. But he also noted that because of inflation, CompuServe had effectively lowered its prices by not raising them. "If you keep the same pricing, you're effectively becoming increasingly competitive," he said.