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AltaVista may pioneer new ISP rate model in U.K.

The Web portal's plans to pick up costly local phone charges for Internet users in the United Kingdom could be the first step in a sweeping redefinition of "free" online service in Europe, analysts say.

Web portal AltaVista's plans to pick up costly local phone charges for Internet users in the United Kingdom could be the first step in a sweeping redefinition of "free" online service in Europe, according to analysts.

Internet service provider Freeserve first set the battle lines for Net access in the United Kingdom, launching a subscription-less service that was so successful it soon forced America Online to follow suit. But subscription-less service in the United Kingdom does not mean toll-free. Customers still must pay local charges on all phone connections, including calls for Internet dial-up, and Freeserve and AOL get a cut of those fees.

Although AOL has repeatedly ridiculed free access as an untenable business model, AltaVista's plans could put new pressure on competitors in the United Kingdom to move closer to genuinely toll-free access, according to analysts.

"The fact that AltaVista is doing this is going to start a battleground," said Bruce Kasrel, an analyst at Forrester Research. "(U.K. consumers) are going to sit there and say, 'How free is Freeserve? It costs nothing for the ISP, but a lot for phone charges.'"

AltaVista's push also comes as AOL faces pricing pressure in other European markets. Last month, Deutsche Telekom's T-Online ISP announced it would begin offering flat access fees to its German consumers, a move that AOL criticized as giving preferential treatment. In Germany, all local ISPs must use Deutsche Telekom's network to connect to users, and they pay a fixed per-minute connection rate.

AltaVista's new service, slated to launch in two to three months, will offer U.K. customers monthly subscription-free Internet access for a one-time fee of about 30 pounds to 40 pounds ($47 to $63), according to David Emanuel, an AltaVista spokesman. The company hopes the up-front charge, coupled with advertising and e-commerce revenues, will offset costly local phone charges that U.K. Net users must pay each month.

The move is significant given the heightened competition for Internet users in the United Kingdom. Since Freeserve's launch in September 1998, the ISP has raced in front of AOL U.K., a subsidiary of AOL Europe, signing up 1.58 million active users as of November 1999.

In response, AOL Europe last summer launched its own free ISP, dubbed Netscape Online, giving AOL a foothold into similar services in other European countries. AOL's flagship online service in the United Kingdom has more than 800,000 users, CompuServe has 400,000, and Netscape Online has 400,000 subscribers, according to the company.

AOL Europe has 3.8 million customers, according to the company, although it would not provide membership details country by country.

Now that AltaVista is poised to enter the game in the United Kingdom, unmetered access is being pushed closer to the forefront. Analysts say that other local ISPs, and possibly AOL and Freeserve, too, will soon be forced to find ways to offer services unfettered by local phone charges.

"The general trend is to move toward some kind of unmetered pricing," said Noah Yasskin, an analyst at Jupiter Communications. "They need unmetered pricing to really drive advertising and e-commerce."

Said AOL U.K. spokesman Matt Peacock: "We have always and will always welcome any individual (company) that says consumers in the U.K. and Europe need and deserve unmetered access. There will be no e-commerce revolution without it."

Peacock said the company will take a "wait-and-see" attitude on AltaVista's expected service. Although AOL remains a proponent of unmetered access, Peacock said the company will evaluate whether AOL will adopt AltaVista's model.

For AltaVista, today's announcement may help it gain a foothold in an important market overseas, where it is playing catch-up in the portal race. The company faces considerable challenges from U.S.-based portals that have launched services in the U.K., including Yahoo and Excite.

AltaVista's free ISP is likely to drive users to its home page, the company said. Unlike its free ISP service in North America, AltaVista's U.K. service will not serve constant advertising banners. Instead, users who launch the free ISP service will automatically begin on AltaVista's home page, which users cannot change.

The portal will rely on advertising and e-commerce on its home page to offset costs for access, according to AltaVista's Emanuel.

"This service is not only to get more people online but also to introduce them to other AltaVista services," he said.

According to Jupiter's Yasskin, the access piece is just a way for AltaVista to market its portal. Because the company plans to focus heavily on advertising on the home page, AltaVista's move is a way for the company to make a significant splash to offset a late entry into the market.

"The access part of business is not where they're going to make money," Yasskin said. "They're looking to lose a significant amount of money on the access side to catch up on some lost ground on the portal side."