Free ISPs vs AOL: who will have the last laugh?

The latest jockeying for position in the UK Internet service provider (ISP) market will only have an impact on home users and small businesses as consumers of Internet services. But for providers, recent developments are potentially much more important.

AOL last week said it is dropping its rate for unlimited monthly access by 40 per cent to £9.99 on 1 June. It claimed it wants more of its subscribers to step up from light user schemes, but the impact of Freeserve - and now a host of other providers with their own variations on the free ISP theme - is the real reason. Since its launch, the Dixons-owned ISP has stolen thousands of potential AOL users.

But as one analyst put it, with the amount of calls AOL users rack up, it would have been easy for the company to scrap monthly charges, a road VirginNet has already gone down.

But AOL hasn't and it may yet have the last laugh.

AOL's ace in the hole is a plan to offer free dial-up. A badly kept secret, the service would probably take the form of a flat monthly cost of, say, £20. An 0800 freephone number would give users unlimited time online.

This approach would be good news for many users and provide a boost to ecommerce in the UK - any companies using the Net to reach consumers and small businesses should welcome such a move.

The problem is that AOL would take all the risk. Many customers are likely to rack up more in call charges than their fixed monthly subscription, even allowing for discounts AOL could get from telcos. BT awaits, smiling.

A spokesman for the Campaign for Unmetered Telecommunications said there is an answer to this - get regulators to make the local loop truly competitive by taking the copper out of BT's hands and letting other companies provide local services, other than via cable.

Once an operator provides local calls for a fixed monthly fee - as is the case with regional Bell operators in the US - the risk disappears for AOL and the wheels of ecommerce are greased.

And we'll stop hearing so much about free ISPs.