T-Online defends pricing against AOL attacks

Germany's leading ISP (Internet service provider) is fighting back against criticism over its decision to phase out flat-rate pricing for dial-up access. The chairman of the board of T-Online International AG, Thomas Holtrop, said Wednesday his company still gives users better value than competitor America Online Inc., which offers Germany's only remaining flat-rate tariff on a limited basis.

"It's difficult to understand the allegation, which is continually repeated, that T-Online is 'putting the brakes on Internet development in Germany,' even more so when tariff policies are quoted as evidence," he told journalists here.

Flat-rate Internet service has faced an uphill struggle in much of Europe, where local telephone service is traditionally billed by the minute, in contrast to the U.S. where most phone subscribers can make unlimited local calls at no additional charge.

T-Online eliminated its money-losing flat-rate service in March, forcing customers into pricing plans offering per-minute service and package deals of up to 120 hours a month. AOL accuses T-Online's parent company, Deutsche Telekom AG (DT), of hobbling ISPs by refusing to provide viable wholesale access to its local phone network. While AOL offers Germans flat-rate dial-up service at 39.90 marks (US$18.59) a month, it has a limit of 1,000 new customers a week, chosen at random from applicants.

"In the U.S.A., but also in neighboring European countries such as England or France, the former telecom monopolies and politicians have already made possible what we're still waiting for in Germany: flat-rate tariffs for Internet connections, from the telephone jack of the customer to the network of the Internet provider," said AOL in a statement on its German Web site. "At present we cannot take advantage of any acceptable wholesale flat rate. We pay for the necessary local loop services from Deutsche Telekom by the minute. There's no way around it, as Deutsche Telekom ... has just under a 98 percent market share in the local loop."

But Holtrop said that AOL's average U.S. and U.K. customer surfs just 30 hours per month, and at that usage level, his company's customers pay far less.

"AOL is in fact subsidizing the heavy users at the expense of normal consumers. The variety of by-call and budget tariffs in the German market already meets the needs of the average customer, far better than the current AOL offerings in the U.S.A," he said.

AOL in the U.K. charges the equivalent of 23.68 euros (US$21.58) per month for flat-rate service, and in the U.S., 25.93 euros, he added. But T-Online costs only 14.81 euros for up to 30 hours of access.

A spokeswoman for AOL confirmed her company's pricing plans, but said, "I don't know what other companies' prices are, but what distinguishes us is the amount of content we have. When you log in you can access a range of channels -- business, shopping, travel, chat rooms, directories -- as well as accessing the rest of the Web."

Rainier Beaujean, T-Online's chief financial officer, said the phase-out of the flat rate is contributing to the company's financial well-being.

"In the narrowband flat rate we reduced the number of customers from about 500,000 in the first quarter of 2001 to about 290,000 at the end of June," he said. At the same time, the number of DSL (digital subscriber line) customers increased from 189,000 to 335,000.

The company's revenue for the first six months of 2001 stood at 539.3 million euros, up 53 percent from the figure of 353 million euros reported during the same period last year, according to figures released Wednesday. But T-Online still posted an overall loss before interest, taxes, depreciation and amortization (EBITDA) of 123.3 million euros, as against a loss of 11.7 million euros for the first half of 2000.

T-Online has been promoting DSL service, which it offers at 49 marks per month, as the ideal solution for flat-rate surfers. But the network is slow in coming, only accessible to around half of German households as of the end of last year. DT says it intends to have some 90 percent of households wired by the end of 2001.

(Gillian Law in London contributed to this report.)

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