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MSN latest option in low-cost Net access

Microsoft will begin offering discounted rates for its MSN Internet Access service, marking another potential threat to rival America Online's pricing structure.

Microsoft today said it will begin offering discounted rates for its MSN Internet Access service, marking another step in its strategy to win over consumer Internet users and another potential threat to rival America Online's pricing structure.

Microsoft will offer the service for as low as $6 per month in a deal with longtime computer retail partner Lan Plus. Those who sign up for membership--which costs $69 for one year or $99 for two years--on its new shopping site, MyShoppingClub.com, will receive a CD-ROM with MSN Internet Access.

The offering is the latest in Microsoft's strategy to provide low- or no-cost Internet access in an effort to dethrone AOL as the dominant access provider among consumers. Last month, for example, the company teamed with Costco to offer cobranded, discounted Net access.

MSN has moved toward lowering the cost of access as services in Europe that don't charge subscription fees have taken off. These "free" services--such as Britain's Freeserve--take a cut of per-minute phone charges Net users pay for access and place ads on users' browsers. The success of those services caused AOL to launch a comparable offering, dubbed Netscape Online, in the United Kingdom.

The prospect of free or low-cost Net access has caused waves on Wall Street as well. AOL's stock fell earlier this week after an analyst told Barron's that shares in the company could fall as much as 50 percent as it faces pressure to cut its subscription fees.

It also has led to a resurgence in free, ad-supported Internet access services in the United States. Although several companies tried to make a go of similar offerings a few years ago and failed, lately companies have been rekindling efforts or launching new services. Last month, for example, AltaVista jumped into the fray with a free, ad-supported dial-up service offered in conjunction with start-up 1stUp.com.

Lan Plus has teamed with Microsoft in the past with its ePC program. ePC customers receive a free 400-MHz computer when they prepay for 36 months of MSN Internet Access for $699. With this deal, MyShoppingClub.com is purchasing heavily discounted MSN CDs and then reselling them to customers.

"This promotion allows us to help more people get online using top-rated MSN Internet Access," Rob Bennett, Microsoft's director of marketing for its consumer and commerce group, said in a statement.

As for reports about a possible free access plan on MSN's horizon, Deanna Sanford, lead product manager for MSN, said the possibility remains open.

"A low-cost and no-cost model is certainly something we are evaluating as a business," she said.

According to Brian Oakes, equity analyst at Lehman Brothers: "The big fear is that Microsoft is going to give away Internet access. If Microsoft doesn't make it free, that's a positive for AOL and others."

Oakes added that consumers are generally skittish about committing to long-term Net access deals. And the abundant offerings that bundle Net access services with PCs have not taken off as dramatically as many had expected they would.

"People get suspicious when they hear about bundling deals," Oakes said.

Some analysts also are skeptical about whether MSN's discounts will force AOL to lower its prices. They say consumers are more willing to pay $21.95 per month for AOL's content and community features than they are for MSN's. Plus, they note that when AOL raised its monthly flat fee from $19.95, its member rolls continued to soar.

"You don't always compete on price--you compete on quality and content," said George Peabody, an analyst at Aberdeen Group.