T-Online has posted a nine month loss of $46 million.
It seemed like such a good idea. To steal subscribers away from its main rivals, the German ISP launched an unmetered Internet service. The strategy worked – at least in part. As Europe’s leading ISP, T-Online now boasts a customer base of seven million, an increase of 83% since the beginning of the year.
But the flat monthly fee, introduced in June, has failed to reap required revenues. From a $12.2 million profit this time last year the company has sunk deep into the red. Unfortunately, the bottomless pit of unmetered access won’t go away either. Consumers demand it, but ISPs still have to cover per-minute call charges. High-end users can rack up huge call costs.
Providers across Europe have had problems with offering unmetered services. In the UK, AltaVista and LineOne have both failed, and Freeserve is experiencing capacity problems. Only AOL UK has a stable unmetered service. It is based on FRIACO, a new wholesale tariff from BT, where a set rate is paid for Internet connections.
Until other telecoms operators change their charging systems, unmetered access will continue to be a major loss leader. T-Online needs to go cap-in-hand to its parent, Deutsche Telekom (DT), and negotiate a flat rate, wholesale tariff. Whether this is possible is open to debate, given the current schism between the two companies. In August T-Online Chief Executive Wolfgang Keuntje quit after disagreements with DT’s Ron Sommer. And now it there is news that DT is investigating claims that some of T-Online’s top management held unauthorized second jobs.
T-Online must first sort out its management and appoint a replacement Chief Executive. Not only will this give the company better leverage around the negotiation table, but it will also help it to fully benefit from the current consolidation in the European ISP market. Ultimately, what the company needs is to make some suitable acquisitions and increase its scope.
