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. Last Updated: 07/27/2016

AOL Challenges Freeserve in Britain

LONDON -- AOL Europe has launched a free Internet service provider obviously aimed at toppling a booming Freeserve f the firm that pioneered free Internet access in Britain f from its spot as the nation's leading ISP.

However, Freeserve was unfazed Wednesday about its AOL Europe's new free service, introduced amid much fanfare Tuesday.

"We welcome competition in a marketplace that has expanded enormously since we started less than a year ago. Imitation is the sincerest form of flattery," a Freeserve spokeswoman said.

Launched in September, Britain's pioneering free Internet service provider rapidly overtook AOL Europe as the market leader in Britain and now has 1.3 million active users, but on Tuesday, AOL hit back with what analysts said was a hefty punch.

It launched its own free service, Netscape Online, aimed at Internet-savvy users, saying it was sure existing subscribers would be happy to keep paying the monthly $16 fee for extra services, such as parental control, and more technical support.

The aim is clearly to hit back at Freeserve, which was valued at some pounds 1.5 billion ($2.4 billion) when its parent, electrical retailer Dixons PLC, floated off a fifth of it in Britain's biggest Internet-linked share offering in July.

"Netscape is the first strong competitor to Freeserve and one they need to take very seriously," said Anthony Miller, an analyst at British IT research company Richard Holway Ltd.

"Freeserve has the first-mover advantage but this is really a transitory benefit in the free ISP market."

He said he was watching how the market would value Freeserve once Netscape Online, a joint venture of America Online and Germany's Bertelsmann, was up and running.

AOL Europe, with a million users, has said it felt compelled to join in Britain's stampede to provide no-subscription ISPs, but remained skeptical about their long-term viability.

Free ISPs make money f or so far cushion their losses f mainly from a share of telephone revenue and from advertising and e-commerce. Calls in Britain are charged by length and not as a flat rate per connection.

Since Freeserve launched, some 200 others have jumped on the bandwagon, most of them new but some former subscription servers who dropped charges.

One major contender is, provided by Rupert Murdoch's best selling Sun newspaper, which has one third of a million users and aims to be in the top three ISPs.

Some research has shown scant new-user take-up for subscription services, but AOL f which aims its AOL and Compuserve brands for families and professionals respectively f said it had gained around 300,000 new users in the last year.

A spokeswoman said this was slower growth than prior to the arrival of the free ISPs, "but still pretty healthy."