Clear's zfree internet strategy enters almost income-free zone

By Stephen Ballantyne

Friday 19th May 2000

This week began with Telecom declaring a temporary truce with its rivals over the contentious issue of charging 2c per minute for local calls to the internet. Last week I spoke to Ian Scherger, Clear's director of marketing and online services. First, I asked him why Clear recently started up its free internet service, zfree.

Ian Scherger: "A lot of people are perceiving that all we're doing is zfree and that's our internet proposition to the marketplace. But actually that's not correct. What drove the strategy was the thought that in the old days an ISP that did all things for all people was quite appropriate because home and business users had similar needs.

"But our proposition now is that there's a requirement for a more business-focused ISP. So we've differentiated our service into a service that has more advanced products and services, which is a pay service. At the same time we now have a mass-market service which is zfree and is free.

"Our ability to compete with the likes of Xtra despite the 0867 tax meant we had to look at other models - and the one we settled on is a free-serve model."

NBR: "You're not doing this out of charity, then - you wouldn't expect any business user to find zfree adequate?"

Ian Scherger: "It depends on their needs. There's a large segment of New Zealand businesses that operate from home and are quite small. If we can lower the barriers for entry to getting people online by reducing complexity and cost, we can encourage more people to get online. And then we can offer a growth path for them, so a small business could conceivably start on zfree, then later switch to Clear.

"Zfree accounts get email, a search engine and access to news groups and, of course, to the web. They don't get web hosting or anything that might over-complicate the experience so people will have a good internet experience in product and price."

NBR: "What about income streams for Clear from zfree? What do you get out of it? Advertising? Names?"

Ian Scherger: "Advertising - yes, certainly. Names - no. We're not selling those on because we want to differentiate our free service as the best and most trusted service. We want subscribers to trust that what information they give us - and we ask for the least of any free service provider - will go no further than ourselves. We're not going to sell that information to any third party. We want them to stay with Clear when they decide to upgrade to more sophisticated services.

"Also in the future is permission-based one-to-one marketing, where consumers tell us what sort of interaction they are willing to have with us. They might, for example, give permission for us to send them information about technology and Bavarian motor sports but nothing else. This can only work if consumers aren't bombarded with irrelevant material."

NBR: "The free internet/Telecom/Clear story has been quite big recently, although it was a big story a month ago. Is there a lot going on behind the scenes that we don't hear about?"

Ian Scherger: "We're continuing to progress the zfree customer base - it's over 35,000 now, which is pretty good for only three weeks or so. If it's gone quiet it's because the lawyers are busy shuffling their papers in preparation for court appearances.

"Clear has taken the initiative and asked for talks and Telecom has welcomed that, which is positive. There is also a process regardless of that, which will cause talks to occur; trigger points for renegotiation are looming up. I suspect both parties will be looking for pragmatic ways to avoid further hassles in the future."

NBR: "What about government intervention? Do you see that as a good thing or a bad thing?"

Ian Scherger: "The government inquiry is coming, and then there's the contract interconnect agreement renegotiation coming also. Because we have a fairly static population base, any initiatives that are likely to affect the consumer base, if they have to be resolved by a third party and that takes too long, can have a damaging commercial impact. We have to keep pushing for change if we want to keep ahead commercially."

Those changes will undoubtedly continue to involve zfree's free service, no matter what agreement is eventually made with Telecom over interconnection charging. Clear has many studies of overseas operations that indicate it is indeed possible to turn a profit on basic internet services without directly charging customers; zfree is here to stay. After Telecom's announcement at the beginning of the week I rang Mr Scherger for his thoughts.

NBR: "Telecom has agreed to waive its 2c-a-minute penalty on internet calls that don't use it's 0867 number, at least until the end of August when, with luck, you'll have worked out a new interconnection agreement. What's your opinion of this development?"

Ian Scherger: "I'm very pleased. Before, both our customers and ourselves were being forced into a particular direction with one arm held behind our backs - but now that arm has been released we can focus on the commercial opportunities and on dealing with customer service rather than legal restraints. All parties have entered into this with a win-win objective in mind - I'm optimistic about the future."

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