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Microworkz, AT&T team on free, ad-supported Net access

The PC maker announces it will begin offering "free" Internet service to all computer users, adding to its already controversial product line.

Microworkz today announced it will begin offering "free" Internet service to all computer users, adding to its already controversial product line.

The low-cost PC maker today announced it would begin marketing Internet service from AT&T for free to interested computer users willing to put up with advertising banners on their screen. Microworkz has gained notoriety for offering computers and devices for Internet access for extremely low prices, or for free, to users who sign up for long-term Internet service contracts.

But as one of the pioneers of the so-called free PC movement, Microworkz has also become an emblem of the risks associated with this strategy. Not long after it started selling PCs, the company became inundated with complaints from customers, frustrated by Microworkz's inability to deliver the machines in the face of significant demand.

The controversy has continued, as Microworkz's Internet service provider, Earthlink, discontinued its relationship with the company and filed a lawsuit alleging that the PC maker failed to pay the ISP. Microworkz subsequently turned to AT&T to provide Internet access to its customers, including the free service announced today. The company also announced plans to countersue EarthLink.

"No question, we've had growing pains, and that's why we've enlisted the help of a very big partner," said Microworkz CEO Rick Latman, in an email interview today. "All connectivity and customer support is provided by AT&T during the next three years."

Aside from Microworkz's specific problems, it is unclear whether consumers are willing to view ad banners in return for free ISP service. Some ventures, such as Free-PC, have garnered major interest from consumers, because they offer a free computer along with the ad-supported Internet service.

"There are tons of data indicating there are two camps of people, those who will [view ads in return for Internet service], and those who won't," Latman said via email. "That's exactly why we've released both products," he said, referring to the company's plan to also market AT&T's service for $11.99 per month.

It is also unclear how profit will be generated. Latman has declined in the past to explain how the company can make money selling the iToaster Internet device for $199, which comes out August 16, and give away or sell Internet service for $11.99 per month. In addition, the company now faces competition from industry giants such as Microsoft and America Online, as well as major PC makers, all of whom are exploring different ways of subsidizing hardware costs with Internet service rebates.

The company has signed up advertisers for the service, Latman said, and is in talks to offer the free Internet service bundled with third party computers, although he declined to name specific companies.

AT&T could not be reached for this particular deal with Microworkz, but acknowledged the earlier deals under which Microworkz will provide its customers AT&T's ISP services. Under the deals, AT&T provides wholesale service to Microworkz and in turn receives compensation, said the spokeswoman.

Latman also acknowledged that AT&T is certainly not working for free. Under Microworkz's paid-for ISP program, for instance, customers pay AT&T directly. It is unclear what compensation AT&T will get under these deals.

Microworkz's free Internet service starts on August 21, and includes 150 hours of service per month.