Ocean first with offer of free Net access to all users

Although for months it has been a question of: When? rather than: If? the migration of the free Internet service model across the Irish Sea from its origins with British electronics retailer Dixons has sent shock waves through the Internet service provision market in the State. Traditional Internet service providers (ISPs) downplayed the arrival yesterday of Gateway.net, the free Internet access service provided solely to purchasers of Gateway computers, and of Oceanfree.net, the free service available all Internet users. The ISP old guard will now be forced to consider becoming free services or find other ways of retaining customers.

In spite of hidden charges like £1-per-minute costs for technical support and higher phone costs to consumers for daytime Internet access, the free services are expected to share the popularity of British free service companies and have a large take-up, perhaps doubling or tripling the active Internet user market in Ireland in the next few months.

Since it launched its Freeserve Internet service in September, Dixons unexpectedly has become Britain's biggest ISP, with more than a million subscribers. The transformation from a supplier of dishwashers and video recorders to Internet darling has tripled Dixon's share price, pushed the company back into the FTSE 100 index, and added hundreds of millions of pounds to its valuation. As a result, the company, currently valued at between £750 million and £2 billion sterling, has confirmed this week that Freeserve will go public.

Dixons's success has drawn dozens of other so-called "freenet services" into the market. These include such unlikely candidates as booksellers Waterstone's, supermarket chain Tesco and the Sun newspaper.

"What Dixons have done in the UK is turn the whole market upside down," says Mr Colm Grealy, co-founder of ISP Ireland On-Line who has left the company to work in other Internet development areas. "You have to admire them [Ocean] for doing this. They're going to get a lot of customers very quickly." He added that most in the industry expected the arrival of freenet services - "It was just a question of who jumped first."

Entering the market as a freenet supplier is daunting in the Republic, because, unlike Britain, there is no guaranteed revenue model. Greater deregulation of the telecommunications market in Britain means that suppliers like Dixons can make lucrative arrangements to split telephone call revenues with telecoms providers such as British Telecom.

Here, Telecom Eireann has refused to enter such agreements although ISPs say they have requested them for four years. Telecom argues that it believes there are legal limitations on services it can provide. But many of those limitations are likely to be abolished by the tele communications regulator, Ms Etain Doyle, who is expected to announce changes to the regulatory structure for such services at the end of this month.

Ocean acknowledges the service will likely run at a loss initially, but business development manager Mr Derek Kickham says the company expects future returns from e-commerce and perhaps from telephone revenue as the Irish telecoms market is further deregulated. He insists the company is "not interested in generating a revenue stream through technical support" charges of £1 per minute, although his belief that Ocean users are unlikely to need much technical support are not borne out by the general experiences of ISPs.

According to Mr Grealy, Ireland On-Line averages 700 technical support calls a day. Mr Mark Beggs, managing director of ISP Indigo, says customers typically make four tech-support calls of 20 minutes each in the first six months of their Internet subscription.

Mr Beggs also warned that when users install Oceanfree.net from the Ocean CD-Rom, the program overrides settings for other ISPs on the user's PC, preventing users from dialing into their existing ISP.

But Mr Kickham denied this was the case and says users can access their current services as well as Oceanfree.net.

Calls to Oceanfree.net are higher in the daytime than calls to existing ISPs because Telecom currently does not let its competitors in the telecommunications market offer their customers the special 1891-prefix access number that keeps daytime Net costs at about a third of the cost of a regular daytime call.

The new freenet services are expected to bring many more Irish people onto the Net. Ireland has a very low installed computer base at 15 per cent of the population, and low Net take-up compared to other European countries. Most ISPs estimate an active Net user base of only 150,000 in Ireland.