AOL serves free challenge to rival

THE STRUGGLE to woo British Web surfers entered a new phase yesterday, as the world's biggest Internet access company, AOL, launched a free service to challenge Freeserve, the one-year-old company which is already the country's biggest Internet provider.

The launch by AOL Europe of its Netscape Online service appears to be a tacit admission that AOL, which still offers a paid-for Internet service, was slow to realise the power of free Net access. Since Freeserve started a year ago, more than 200 "free" Internet providers have started up, some offering users free shares or money if they use the service. As a consequence, the growth of Net use in the UK is exploding at an estimated 50 per cent every six months.

But with 20 million users, mostly in the US, AOL is well placed to catch up. Last year it bought Netscape, which makes the Web browser used by many people to surf the Net. From 1 September, AOL will offer Netscape Online, a free Internet service co-branded with the high-street retail chain Woolworth's, which will distribute software disks from its 800 UK stores.

Netscape Online will be aimed at younger, largely male Net users who are technically adept and do not require much back-up support. One feature of the service will be an easy-to-use Web page composer.

Andreas Schmidt, chief executive of AOL Europe, admitted the company had been slow to respond to Freeserve's challenge, but promised that the company would now drive competition in the British market. "We have built our reputation by providing clear, well thought out approaches to the Internet," he said. "But now we have a very solid case to take to the consumer and we're going to move very aggressively into the mass market."

Some industry commentators strongly suspect that AOL will end up cannibalising its own paid-for service, which costs users about pounds 10 monthly, with the free one. The paid-for service has had to reduce its prices repeatedly since Freeserve's arrival.

Freeserve has attracted 1.5 million customers, and quickly knocked AOL and its sister company Compuserve - which have around a million UK customers - into second place. Other Internet Service Providers (ISPs) which charged monthly subscription fees have seen customer growth virtually dry up.

However AOL Europe's partner Bertelsmann is the continent's premier media company, which may give it an edge in offering attractive content. Though Freeserve has made much of being the largest ISP, AOL has maintained the lead in generating online traffic. It is also judged to be well ahead in collecting revenue from advertising, and servicing online shopping - also known as e-commerce.

Among AOL's content providers are Maxim, the men's magazine, FT.com, the Internet arm of the Financial Times, and other sites including sports.com and Q magazine.

The news of AOL's plans has only slightly dented the share price of Freeserve, which made its stock market debut last month with its shares gaining 43 per cent in value on their first day of flotation. Yesterday they fell by a modest 4.5 pence, closing at 202p.