Dixons Stores Group launches a free Internet access service this week, in a move which could have a cata-strophic effect on the margins of rival paid-for providers.
Dixons expects up to 250,000 customers to sign up for its Freeserve service in the run-up to Christmas, but it is geared up to cope with additional demand, according to corporate development director John Pluthero.
Pluthero would not comment directly on whether Dixons’ move may provoke a bout of bloody price cutting in the market, but by implication he is criticising existing market players for overcharging consumers.
“We estimate there are 1.1 million people paying for home access, at an average rate of about 12 or 15 a month. If everyone responds by matching our move, we will be saving British consumers 150m a year,” he says.
DSG is linking up with existing ISP Planet Online and telecoms group Energis to offer the service. Consumers will be able to hook up to the service by picking up CDs for home installation, which will be promoted at Dixons, Currys, Link and PC World stores. “We will control the roll-out as much as we can,” says Pluthero.
The service includes free unlimited Internet access to UK customers, an unlimited number of e-mail addresses, and 5Mb of Web page capacity for customers, with access through a national local-rate number.
The cost of accessing the service will be effectively payrolled out of the telephone charges paid by customers, at the same rate which most pay to access their paid-for ISPs.
“What’s left in the system for us is some money that telephone operators receive, amid the deals done between us, Energis and BT,” says Pluthero, who declines to comment further on those details. “We also expect to raise revenue from advertising, sponsorship and e-commerce.”
Despite the negligible initial margin, Pluthero insists Freeserve can work as a commercial business on its giveaway pricing structure. It has not been designed as a temporary loss-leader to boost hardware PC sales though its stores, he claims.
“We operate some of the biggest retailers of PCs in the country, but we have not factored any boost in sales into our accounts (in our business plan) for Freeserve,” he says.
“We may be taking a fraction of a penny a month in telephony revenues – it’s what we can make on top of that which is important,” he adds.
“The current level of e-commerce is insignificant for most retailers, but it might become significant. Dixons doesn’t mind whether e-commerce becomes significant or not. But if it does, we have to be there playing a dynamic role.”
Freeserve launches with its own home page, which will initially feature news content, with search and other content from Lycos and Scoot, and a shopping channel area.
Users will initially be led to this home page when signing up to the service, but will not be obliged to maintain it as their default home page setting when logging on, says Pluthero, despite hopes it may develop into a major portal site.
As well as putting price pressure on existing ISPs, the Freeserve launch will also exert commercial pressure on similar ventures, such as BT Click, which are structured to charge a premium phone rate to customers logging onto the Internet, instead of charging a monthly subscription.