Floats come off agenda in fast-changing free internet arena

By Aimee McClinchy

Friday 28th April 2000

CLEAR FOCUS: Karim Hussona

Free internet service providers freenet and Surf4Nix have reassessed their business plans in the wake of huge market upheaval and the entrance of a new player in the last few weeks.

Freenet has accelerated plans to offer a totally free service to internet surfers, while Surf4Nix said a planned IPO has been put off.

High-profile industry interconnection fee scraps and the launch of Clear's free service, zfree, has rocked the ISP market in the last month, making free ISPs' futures uncertain and liable to change over upcoming months.

i4free, embroiled in a legal battle with Telecom, and zfree, which had 19,000 subscribers by the end of Wednesday, have publicly stated part of their revenue streams are to come from a share of interconnection revenues between Telecom and Clear.

But these interconnection fees may change - the agreement is due to end at the end of the year and the Commerce Commission is still deciding whether the 0867 internet access prefix Telecom imposed is anticompetitive.

Both Surf4Nix and freenet are avoiding interconnection revenue arguments, saying they will focus on advertising and retail streams.

Freenet chief executive Karim Hussona said freenet's new no-charge service - it had been charging customers a flat rate after 10 hours' use - was in response to Clear's move and to revised financial projections.

He said the company, owned by Compass Communications, a privately owned telco chaired by John Fernyhough, had achieved 20,000 subscribers in two months, a level of support it had only expected after a year.

"Clear certainly made the change more compelling but it had always been our intention to do this if we could derive significant revenues from advertising and retailing," Mr Hussona said.

"It is in response to the market changes too - we are not an island."

He said freenet would continue to roll out its network, with Nelson and Wanganui next to be connected.

Mr Hussona said freenet, which uses both Telecom and Clear networks, would not rely on interconnection revenues for income.

He said any player's reliance on such revenues and the high costs involved in running a free ISP would soon sort out long-term sustainable players from the short-term ones.

He said free ISPs needed strong financial backing to survive upcoming months of uncertainty. "Average ongoing working costs are $100,000 a month - players have to be prepared to pour money in. We don't intend to be profitable for at least nine months after launch."

"We haven't yet proven this can work, nor have the others. All we've proven is there is a high level of interest."

Surf4Nix's chief executive Aaron Brett said ISPs making money from interconnection revenues had created an "uneven playing field" that would take time to sort out.

Surf4Nix runs only on Telecom's networks and does not receive any interconnection revenues. Mr Brett described the situation as a short-term "lucrative loophole" Surf4Nix had until recently been unaware of.

Surf4Nix would put off a float either on the local stock exchange or offshore and focus on overseas alliances with ISPs and launching a shopping mall for subscribers in May.

"The marketplace has changed dramatically in the last two weeks. At some point in the future we may look at an IPO but at the moment it is the last thing on our mind."

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