Flat-rate Net access becomes a reality

CallNet throws down the gauntlet to other Internet providers as it launches free service

COULD IT be that economists had it wrong all along and, for some of us, some of the time, there is such a thing as a free lunch? The rapid development of the Internet is collapsing the prices of a broad range of goods and services, a battle that is especially fierce in the market for access to the web itself.

COULD IT be that economists had it wrong all along and, for some of us, some of the time, there is such a thing as a free lunch? The rapid development of the Internet is collapsing the prices of a broad range of goods and services, a battle that is especially fierce in the market for access to the web itself.

Yesterday, CallNet, a little-known British technology company, fired an audacious marketing salvo, promising totally free Internet access, with none of the hard-to-understand catches that link discounts with log-on times or agreements to take other services.

Its initiative marks the next stage in the corporate war to sign up Net users, and analysts say that competitors, both big and small, could follow suit. The age of no-charge connection to the web appears set to dawn, much to the delight of the 4.5 million online households around the country.

"This is not only going to change the way people pay for the Internet - it's free - but it's also going to transform the way that people view the Internet," Aaron Goodman-Simpson, CallNet's chief operating officer, said. "For the first time, UK Internet surfers will be able to connect to the Internet totally free - with no phone charges, no set-up costs and no monthly subscription fees."

The significance of the move is easy to grasp, if CallNet and its partners manage to pull it off. Free provision will encourage more intensive use of the Net, with each surfer logged on for longer sessions. Analysts say this raises the potential revenue streams that can be generated from e-commerce and advertising. CallNet says it has parallel but non-discloseable e-commerce programmes in the works, and plans to provide web access via television sets. A spokesman says its UK Net plan is backed by "hundreds of millions of dollars".

Analysts are sceptical. Adam Daum, senior analyst at Inteco, a consumer research group that specialises in technology issues, says: "It does, on the face of it, seem extraordinary because there are no lock-ins. Other parties have tried to do this but linked it with the provision of voice telephony ... If it works it will be a remarkable, and cause a rethink at the likes of AOL and Freeserve."

CallNet, founded in January 1998, claims 145,000 registered Net users at present, and plans to have a further 200,000 by Christmas. In October of last year its parent, World CallNet, completed a reverse takeover of General American Royalty, a Nasdaq-listed oil and gas company. It has a market capitalisation of less than $10m. For its newest venture, CallNet 0800, it has teamed up with North American Gateway (NAG), a unit of the loss-making Canadian telecoms company Highpoint Telecommunications.

Listed in Alberta and valued at 164m Canadian dollars, the company recently raised $92m to build a fibre-optic network linking 10 European countries. Joining the pair are Phones4U, a mobile phone vendor, and Haymarket Publishing, the magazine company.

To qualify, customers will be asked to register basic personal details by phone, after which their Internet access is free, irrespective of when or how long they are on-line. CallNet and its partners will pay British Telecom to deliver the service to users' homes. Mr Goodman-Simpson says clients can also take a discounted voice telephony service from CallNet, but are under no obligation to do so.

Mr Goodman-Simpson said. "We believe people will follow us and break the mould of UK access to the Internet."

CallNet says the revenues the group generate from the voice calls will help to offset the costs of providing the free Net time. Industry watchers say the launch has its roots in the service pioneered by PC store Tempo Electrical, Screaming.net. That allows free Web access, but only at weekends and at set times, and on condition that users switch their voice telephony to its telecoms company, LocalTel.

The CallNet offer is also a variant on the package being pushed very effectively byFreeserve, linked with computer retail chain Dixons, which has attracted 1.5 million users, the country's largest Internet service provider.

Freeserve users pay no subscription fee and qualify for three free hours of Internet time each month, if their phone bills come in between £3 and £9.99. The cost-free access rises to 10 hours a month if a user's monthly telephone bill tops £10. "People were very sceptical about Freeserve when it launched [in October 1998] but it has proved very successful," one analyst said.

Like other subscription-free ISPs, CallNet has negotiated an agreement with BT to take a cut of the phone bills clocked up by its customers. BT itself runs two Net access services, BT Internet, which requires a subscription and BT click.com a subscription-free deal.

The United States market provides some clues as to the probable developments on this side of the Atlantic. Figures from AOL show that American users enjoying unmetered phone calls log on for an average of 55 minutes each time, compared with 17 minutes a session in Britain. For now, analysts suggest that developments here will take time, as many Net customers tend to stay with the provider they know. Mr Baum says half of UK householders that have Net access still pay monthly subscription fees despite the arrival of discounted services.

CallNet's late arrival here may also may make it difficult to build a customer base ahead of the launch next spring of both BT's high speed ADSL service as well as NTL and Telewest's offer of high speed cable access. Both offerings will give always-on, unmetered web surfing from around £30 per month.

"The way the world will look in three years depends very much on how this [CallNet offer] works,' Mr Baum says.

A NAG spokesman insists that it has the stomach for the fight - and the resources to make it work. Last year, parent Highpoint Telecom lost a net $25m on revenues of $14m. "The reality is that the only way for the Internet to go forward is for access to be free," he said. "As far as revenue is concerned there is the telecom side ... and e-commerce and advertising. 'There's no such thing as a free lunch?' People said the same thing about Freeserve when they started."