America Online to Offer Free Internet Service in Britain

America Online Inc., the unchallenged leader in cyberspace access at home--with 16 million U.S. customers and counting--has been humbled in Britain this year. Today it will strike back with its competitors’ weapon: free Internet service.

AOL plans to announce no-charge service that will only be available in Britain, but the company might extend it to the Continent, where it’s starting to feel heat both from free services and the former national telephone monopolies in France and Germany that offer the Internet at rock-bottom prices.

AOL has no plans to offer free service in the United States, where the economics of signing on are quite different from Europe. In Britain and elsewhere in Europe, people pay a telephone company by the minute for local calls and Internet services collect part of customers’ phone payments.

The free service is crucial to AOL’s hopes to restore its status as the No. 1 online service in Britain. In recent months, AOL has been overtaken by Freeserve, one of a new breed of companies that charge nothing to connect people to the World Wide Web for as long as they want.

While AOL still has plenty of room to grow in the U.S., where an estimated 37% of households are online, the potential is even higher in Europe. Only 13% of households are online in Germany and 4% in Italy, according to researcher Jupiter Communications.