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Free DSL service opens its doors

After a year filled with strong gains by free dial-up Internet service providers, a Southern California company is raising the ante with an offer of high-speed Net access.

After a year filled with strong gains by free dial-up Internet service providers, a Southern California company is raising the ante with an offer of free high-speed Net access.

The Broadband Digital Group, led by the same entrepreneur that started Net ad companies AdForce and AdSmart, plans to give consumers Net connections that are nearly seven times faster than dial-up alternatives. The Orange County, Calif., company will offer a digital subscriber line (DSL) service supported entirely by advertisements, according to executives. DSL is a technology that allows existing telephone lines to carry ordinary voice and high-speed Net traffic simultaneously.

If successful, the service has the potential to light a stick of dynamite beneath the fast-growing high-speed Net market. Telephone and cable companies already are hard-pressed to keep up with demand for speedy Internet access even when charging $30 to $50 per month. Offering the service for free will likely boost demand still more.

"This is the opportune time [to gain market share], before the tidal wave breaks for the massive deployment of DSL," said Ryan Steelberg, the founder of the free DSL service and chief executive of the Broadband Digital Group.

It's a risky venture, even in a market where free dial-up ISP services have gone from novelty to a mainstream concept, endorsed by companies as varied as Yahoo and Kmart. High-speed Net service is considerably more expensive to provide than dial-up service--and the free dial-up ISPs, despite attracting millions of subscribers, have yet to prove they can turn a profit.

Nevertheless, it's an idea analysts believe was inevitable in an industry increasingly marked by free email, free Net service and even free personal computers. Already, one company has begun to offer free broadband access to small and medium businesses, hoping to make money from related services.

"There's been a lot of thought that high-speed access would ultimately become a commodity," said Jeanette Noyes, an industry analyst with International Data Corp. "But it seems to have happened faster than anyone predicted."

Steelberg's venture will officially launch tomorrow, when his FreeDSL site will start taking registrations for customers in many major metropolitan areas in the United States. The connections won't actually be activated until April 1, he said.

The company plans to work with existing DSL providers, such as Pacific Bell or Bell Atlantic, as well as install its own equipment in telephone company's central offices.

That will be considerably more expensive than offering dial-up service, even though prices for equipment and bandwidth have come down in recent months, Steelberg says. But he hopes to pressure the local phone companies into cutting their prices by offering them access to a huge new customer base--and by threatening to instead use even newer technologies, such as high-speed wireless service, if the local companies don't cooperate.

"If the telephone companies don't help us deploy faster, we will still have to meet that demand, particularly with other technologies," Steelberg said. "But there's going be room for a huge symbiotic relationship between us and [the local phone companies]."

Analysts are skeptical that the company will be able to meet a huge surge of demand for free broadband services, noting that telephone and cable TV companies are already having problems deploying enough equipment to serve customers willing to pay $40 a month for high-speed access.

"The market is supply-constrained right now," said Mike Wolf, an industry analyst with Cahners In-Stat Group. "I think people are already signing up as fast as providers can roll the services out."

That's a warning sign for the Broadband Digital Group, which needs to sign up as many people as possible in order to attract advertisers. Steelberg says he plans to make his money back by showing full-motion advertisements that are more complex than those possible on slower dial-up modems, and by capturing revenue from high-bandwidth services like video-on-demand, online gaming and Internet telephony.

The FreeDSL service also will target small businesses and apartment buildings, where Steelberg thinks he can make money more quickly.

The service could be bad news for companies such as cable Net service Excite@Home or DSL provider Covad Communications, whose business models depend on a constant stream of subscription revenue from their high-speed customers. Excite@Home CEO Tom Jermoluk has consistently predicted a future where broadband access is essentially free, and Net companies gain most of their revenue from content and other services. But his drive to move Excite@Home in a more content-focused direction has been stymied by opposition from AT&T, which is its largest shareholder.

Still, analysts say the impact of Steelberg's free service on today's broadband market is likely to be muted, at least until it proves itself to be a viable business.

"Free [dial-up] ISPs are becoming established, but you haven't seen many people give up their ISP subscriptions," Noyes said. "I would expect the same thing to happen in the DSL market."