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Free Net access thrives outside U.S.

Though free Internet access services have struggled in the United States, they appear to work well in Canada and parts of Europe.

Offering free Internet access has proved a perilous experiment in the United States, with the number of failed efforts roughly matching the number of struggling ones. But in other countries, including Canada, Sweden, Spain, Germany, and the United Kingdom, free Net access appears to be a thriving market.

In the latest example of foreign interest in this business, a small Canadian firm said it will announce a series of partnerships with some of the tech industry's biggest players to provide Canadians in target cities with Internet access for the price of accommodating advertisements on their computer screens.

Cybersurf next Monday will unveil its service, dubbed "3 Web." Scheduled to launch in Calgary, Alberta, next month, 3 Web will make money by feeding users a steady stream of demographically targeted advertising.

The company will test the service in Calgary and head for Toronto and Vancouver if it is successful.

That success is hardly guaranteed. The advertising-supported free access model has shown mixed results in the United States, where companies including Freewwweb and Bigger.net are struggling to make a go of it. Others, including Hyper Net USA and USFreeway, have gone belly-up.

Analysts frown on the purely advertising-supported services, saying that successful free Internet service will follow the model set by the U.K.'s Virgin Net, which recently announced a partnership with Citibank to offer new online Citibank customers in the U.K. free Internet access along with high interest rates on their accounts.

But Canada's Cybersurf said it has boned up on the history of free Net access failures and is determined not to repeat the failed companies' mistakes.

Those unsuccessful service providers had spent about $60 per subscriber in advertising costs, said Cybersurf president Paul Mercia. The major advantage of the 3 Web plan, according to Mercia, is that Cybersurf has outsourced all its marketing responsibilities to one of Canada's leading television broadcast giants, Baton Broadcasting. Baton's network is known as CTV, and 3 Web derives its name from Baton's Calgary affiliate, CFCN on Channel 3.

Even though Cybersurf is building on the advertising model, it isn't ruling out commercial partnerships, either. The company has been in discussion with two Canadian banks that want real estate on the 3 Web interface, or a button that will take users to an online registration form.

Cybersurf also has cut deals with Netscape Communications, which will provide its SuiteSpot back-end server software in exchange for exclusive use of the Navigator browser with the service. Netscape also will get a button on the 3 Web interface linking users to a page for Netscape software sales.

Other 3 Web partnerships include deals with Digital Equipment, which will provide 3 Web with its AlphaServers at a deep discount; and Canadian telco Telus, which will provide access through locally placed dial-in modems that connect to its fiber network.

In an instance of "cooptition," or a mix of cooperation and competition increasingly typical in the Net arena, Telus-powered 3 Web will compete with Telus' own fee-based Net access service. And 3 Web also will compete with Cybersurf's own fee-based Net access service.

Cybersurf executives said 3 Web would actually benefit their company and their partners by targeting a segment of the population that is not yet online.

"We don't expect heavy users, typically males aged 20 to 40, to use the service, at least not at first," said Cybersurf chief executive Bill Hammett. "There will be some cannibalism of existing services, including our own, but overall this is going to add more users. This will make the pie bigger."

One reason heavy users will shy away from 3 Web, according to Hammett, is that the new service will start penalizing users after one hour's use per day by feeding more aggressively placed ads. Instead of occupying the top portion of the screen, they will sink toward the middle.

"You don't get kicked off, but you will start to get ads coming up in your face," said Hammett. "You wouldn't really enjoy the surfing experience."

In addition to the U.K. service in the works by Citibank and Virgin Net, Europeans are finding more and more options for free Internet access.

Germany.net offers free access and has amassed more than 300,000 subscribers so far. The service is funded through full-screen advertisements that appear when users pass from one site to another.

In Sweden, there are at least four companies offering free access: SBBS, Utfors, BIP, and Flashback. Most of these offer access at speeds up to 56 kbps, though Utfors also offers free access via high-speed ISDN. BIP has 70,000 subscribers, a sizable base in a country of nearly 9 million people.

In Spain, the bank Argentaria is teaming up with set-top box provider NetGem and ISP Telefónica to offer home banking service for its customers. That service includes free Internet access, according to NetGem.