For someone who last autumn warned that free Internet access services such as Freeserve might not be viable, Virgin Net’s chief executive David Clarke now seems extraordinarily sanguine about adopting a free-access model.
Virgin Net is preparing to become a free Internet service provider (ISP) and switch 150,000 customers over to its new service. It will compete against market trailblazer Freeserve, plus BT ClickFree, Tesco, Eidos-branded Easynet service, Mirror Group and even porn-driven Solarnet, a sister company of David Sullivan’s Sport newspaper.
Last September, the head of Virgin Net, then charging a competitive 11.99 a month for unlimited Internet access, warned: “Evidence shows that any level of quality of service provision for access and customer support must have a fee attached for it to be viable.”
Clarke says the new terms offered by telecoms suppliers have changed the market. “We first realised we might have to go down this route two years ago, although we didn’t expect Dixons to be the first out,” he says.
Virgin Net’s five-year business plan is based far more on value of advertising and e-commerce revenues rather than subscription fees. But to achieve these targets, Virgin Net has had to remain a major “volume” player and maintain its competive pricing.
The major question mark hanging over the industry, he main tains, is how long other established subscription-based services – particularly AOL – can swim against the tide.
The deal between Freeserve and its telecoms partner Energis set a new benchmark for the industry and has sparked a bout of renegotiations between rival ISPs and their telecoms partners, says Clarke.
“We started renegotiating with our partner, NTL, the day after we heard about the Energis terms,” says Clarke. “In the end, we were happy to stick with NTL. The degree to which Energis was prepared to fund Freeserve was a shock. But there are 100 million call minutes a month being generated in this sector. It’s big business for telecoms operators. They all want it and are getting very competitive.”
Clarke says he would be very surprised if other ISPs which continue to charge customers, haven’t renegotiated their deals to secure an improved split of the “interconnectivity fee” available from the cost of local phone calls.
Virgin Net did continue to recruit members despite the launch of Freeserve, but Clarke clearly believes ISPs which continue to charge customers risk seeing their customer base eroded and being left behind in the new market – regardless of the strength of their content and services.
“I don’t know what reason AOL will give its customers for not following the pack,” says Clarke. “In the next few years the market will be dominated by three or four major players. If you haven’t got a large share of the market, you simply won’t be able to get the customers.”