Virgin to end subscription fees for access to Internet

THE PRESSURE on Internet companies to offer free access intensified yesterday, with the announcement by Richard Branson's Virgin.net that from April its users will not have to pay the monthly pounds 11.99 charge.

Virgin.net is the first company to reverse an established policy of charging a subscription, although start-up Internet companies have already followed the lead of Dixons' Freeserve, by which the user only pays the telephone charge while connected. But David Clarke, chief executive of Virgin, is certain his company will not be the last.

"I think they will all have to do the same," he said. "You can either keep the money yourself or pass it back to your customers - and we have decided to pass it back."

Virgin announced the move to its 150,000 subscribers in an overnight email. People who have already paid will be refunded, it said.

Forgoing the charge will cost Virgin more than pounds 21m annually, but the company hopes to make up for that by attracting a million subscribers within a year.

Other Internet companies denied they would follow Virgin's move, but Tim Pearson, chairman of the Internet Service Providers' Association (ISPA), commented: "There is pressure on the other paid-for ISPs. We are entering a period of instability which could end up with everybody going over to free services, but only a few of the providers making any money from them."

Virgin has joined at least five major groups now offering free Internet access. The key is Britain's 40-odd independently licensed telecoms companies, which provide the final link to the Internet from the national phone network.

The companies earn money as people use their network - and if enough people use the otherwise "dark" optical fibre, the companies recoup their investment.

Last September, the High Street store Dixons launched Freeserve, the first free-access service, in partnership with the Energis telecoms company. Since then Freeserve has acquired more than 900,000 subscribers - making it both the biggest and the fastest-growing ISP in the UK.

If Virgin can emulate that, it can raise its charges for advertising on its Web site. As part of a pounds 50m investment, the Virgin group also intends to offer more electronic commerce services for Virgin products such as CDs, airlines and financial services.

However the move could be a costly mistake. The telecoms watchdog Oftel will next week publish its opinion on whether the prices for calls which end on lines belonging to different telecoms companies should be changed.

That could reduce revenues to smaller companies - and cut the financial floor from under the free providers.