AOL Europe, a joint venture of America Online and Germany's Bertelsmann, said the new service called Netscape Online would be launched in mid-August.

It said it would complement its flagship family-oriented AOL and professional-focused CompuServe brands which charge most subscribers a flat rate of just under 10 pounds ($16) a month.

These offer added-value services, such as parental control over access to sites unsuitable for children, whose value AOL Europe's president, Andreas Schmidt, said he hoped would eventually persuade free users to become paying users.

AOL is fighting Freeserve, which has overtaken it as the biggest UK Internet Service Provider (ISP) and revolutionised the industry less than a year after electronics retailer Dixons launched it as the firstsubscription-free service.

Freeserve plans to sell off a fifth of its shares next month in the country's first major Internet floatation that values it at up to 1.5 billion pounds ($2.3 billion).

Schmidt said his new service was aimed at the growing "value", or cost-conscious, market--young, male, single, Internet-savvy and happy with what he called a stripped-down service--though one he predicted would outshine its rivals.

Since Freeserve pioneered free access, where the user pays for phone time but not for a monthly subscription, more than 100 copycats have followed the suit--often based on famous brands from newspapers to football clubs.

The big question remains how can they make money.

Schmidt said that like Freeserve, Netscape Online would aim to make its profits in the longer term from advertising revenue and electronic commerce, rather than the share of phone call revenues that make up free ISPs' main revenue stream today.

The proportion of call cost going to the provider--theinterconnectivity rate--has attracted the attention of British telecommunications regulators and is higher than in many countries. Hefty phone helpline charges also bring in money.

"No one knows how long this business model--which is an anomaly mainly in the UK--will stay around," Schmidt said.

"In the medium period there will be much consolidation among the 100-plus free ISPs in the UK."

He said many free ISPs would be unable to attract the electronic commerce and advertising to survive, whereas AOL could capitalise on its existing infrastructure of sharp marketing, sales, advertisers and a huge customer base.

It has a million subscribers in Britain and some 20 million worldwide. AOL Europe is the continent's biggest ISP, and Schmidt said it would look into adding a free service in other countries too if the market headed that way.