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Free Net access in the future?

Large corporations are beginning to offer free Internet access as a way of gaining online customers and keeping them, observers say.

While Internet service providers angle for customers with discounts of a few dollars per month, other players are developing strategies to offer service for free.

There are usually strings attached. In most cases, users are required to view advertisements that pay the ISP's bills--in a similar business model to the free email services. But in a potential emerging trend, analysts say large corporations are beginning to offer free Internet access as a way of gaining online customers and keeping them.

In an early instance of this kind of free offer, Citicorp's Citibank and U.K.-based ISP Virgin Net will provide U.K. banking customers free Internet access, according to a report by the Wall Street Journal. In addition to free Internet access, banking customers that maintain a certain balance will receive a 4.75 percent interest rate, compared to the average 0.3 percent rate, the Journal reported. That additional perk is the result of cost savings by Citibank, which will not build any branches in the United Kingdom.

Analysts say this kind of free Net access is the wave of the future.

"On the long-term horizon, the Internet access price point may approach single digits or even zero," said Jupiter Communications analyst Adam Schoenfeld. "If you get one very credible provider, then potentially no one could charge."

Free Net access would act as a "loss leader" for Citibank to bring customers into the fold in the ultracompetitive European banking market. The company then could upsell those customers to other goods and services.

Banks and other financial institutions aren't the only companies that might consider this tactic to lure online customers.

"Gateway already offers subsidized [though not free] Internet access to its customers," noted Forrester Research analyst Kate Delhagen. "And I think the credit card folks and the airlines will be there, too. It's the kind of thing that could make consumers more likely to buy more products, to recommend the service to friends, and overall gain loyalty and a lifelong customer relationship."

Delhagen said she expected free access offers to start springing up in the United States in the next two to three years.

On the other end of the free Net access spectrum from banks and airlines are the small players that offer free access that comes with advertisements that appear in a separate window from the browser or email client. These include Tritium.net, which is rolling out free access on a gradual basis, and Bigger.net, which offers free monthly access after a $60 start-up fee.

Freewwweb offers free monthly Net access after $120 in start-up charges. Juno offers free advertising-supported email, but not Web access.

But the free Net access landscape is littered with the bodies of providers who tried and failed to make a go of the business.

One free advertising-supported Net access service known as Cyberfreeway, offered by Hyper Net USA, went belly up last year. j3 Communications withdrew its free Net access offer after only a few unprofitable months.

In another instance, hundreds of customers complained that they never received their promised lifetime Net access after paying between $25 and $45 to BOSnet Communications and an affiliated company, USFreeway, both of which apparently disappeared.

Accordingly, analysts are not optimistic about the prospects for the ad-based services. They cite the finite amount of advertising dollars as a primary concern, compared to the high cost of providing reliable service. Larger companies are breaking even or losing money at $20 per month, they note; for a company to make money on free access--without raking in e-commerce or other revenues--is unlikely.