By Gail Lawyer

http://www.desktop-publishers.com

Hawking Free DSL

Does The Business Case Add Up?

The cost of high-speed Internet access is set to drop dramatically this month as a host of companies begin widespread offerings of free DSLs.

But free isn't always as easy or cheap as it seems. The ultimate price for customers is their time, which partly will be spent viewing ads that fund their service, and maybe even $200 for a modem.

To profit, the companies-- Broadband Digital Group, iNYC Corp. and Staruni Corp. -- will rely on end users clicking on online banners and watching MPEG ads as well as purchasing broadband services and content, such as video on demand, games and software.

While free DSL may be what's needed to spur consumer demand, several questions still exist as to whether these offerings will be successful financially.

"I think it would be fabulous if we could get DSL in the hands of everyone, free or otherwise," says Brad Connors, president and CEO of DSL Networks, a value-added DSL provider that, more than a year ago, explored free DSL business models. "But we understand the costs. It doesn't add up if they're using an ad-based model. There are significant financial obstacles these folks are ignoring."

For instance, the free DSL provider will have to pay DSL wholesalers between $10 and $30 per line, and they will have to foot the costs of developing back-office systems to manage the offering.

Industry analysts seem to have mixed feelings about the free DSL model. "It's better than the free ISP because companies can build in additional services," says Carl Garland, principal network services analyst for Current Analysis Inc.  "Ultimately it's a 'foot-in-the-door' approach. The free piece is a draw to get people to pay for the service."

Sparking consumer interest in broadband services by giving it away could be a huge boon to the DSL industry as a whole. "If anything, it's good news for wholesale providers because it will spur more demand," says Mark Zohar, research director for Forrester Research. "Once people have a DSL experience, they won't go back to dial-up."

Demand is exactly what Broadband Digital Group is driving. Within the first month that customers could pre-register online for its FreeDSL offering, almost a half million people signed up. And those potential customers referred another 1.5 million to the service.

Broadband Digital's FreeDSL gives users up to 144kbps and an e-mail account. "If they want higher levels, they can purchase upgrade packages," says Ryan Steelberg, Broadband Digital's president.

Broadband Digital will initially rely on advertising to fund its service. "We know the Internet ad space better than anyone," says Steelberg, who in prior lives was co-founder of AdForce, president of AdSmart and founder of 2CanMedia, all online advertising companies. Initially Broadband Digital will use click-on banners, but it plans to add MPEG video to the mix.

Ads will be only a minimal part of Broadband Digital's revenue, Steelberg says. "We will focus on broadband services--video on demand, VoIP, software on demand and online gaming," he adds. The company has alliances with 130 distributors and content providers through its ownership of Winfire, which developed the Browser Assistant, a web navigation tool Free-DSL customers must use.

In preparation for its launch this month, Broadband Digital began rolling out service to initial customers in Atlanta, Boston, Chicago, Dallas, Los Angeles and San Francisco throughout March. Those six markets represent 95 percent of Broadband Digital's customer base, according to Steelberg. Currently, Broadband Digital has deployment deals with two wholesale DSL providers, though he wouldn't say whether they were CLECs or incumbent telcos.

For the service, customers will have to pay for their own modem, which retails for about $200. Or they can earn free hardware by getting 10 other customers to install Winfire.

iNYC has a different approach for its free DSL (FDSL) offering, which was scheduled to launch in mid-March.

"We're taking a safer route," says Steven Bruno, iNYC's co-founder.

The company has been offering asymmetric DSL (ADSL) for $49 to $89 a month for about a year, through wholesale agreements with Covad Communications Co. and NorthPoint Communications Group Inc.  With FDSL, customers can earn "iBATES," or points, toward discounts on the retail price of the DSL line. iBATES are received when customers click on banner ads or access the Internet through iNYC's portal.

"In the worst case, they get DSL for a discount," says Bruno, who adds that the marketing plan was developed after seeing individuals surf the net for five to 10 hours a day. "We thought, 'why not have advertisers pay for these people's high-speed access?'"

iNYC says it will offer FDSL throughout the United States, but initial installation will take place in the East. Speeds for the FDSL service will go to 640kbps downstream and 124kbps upstream, depending on the wholesale provider, Bruno says.

While FDSL is mostly geared toward consumers, iNYC is also trying to make it attractive to small-business owners. Rather than requiring employees to click through ads, which most business owners might object to, iNYC will issue credit cards. The businesses can earn iBATES with purchases at office supply stores and other retailers.

FDSL subscribers will receive free modems and installation if they sign at least a two-year contract. Otherwise, modems must be purchased.

Staruni Corp., a low-cost ISP in Southern California, also hopes to offer free DSL to consumers and small businesses. But its plans are not as well defined.

"We're working with a number of people, trying to get the best deal" on DSL lines, says Bruce Stuart, Staruni's CEO.

Initially Staruni hopes to rely on an ad-based model. Eventually though, the company will allow people to sign on through its website.

Once all the details are worked out, the service will be launched in Southern California and then expand nationwide, says Stuart.

More details on free DSL, click here!

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Resources:

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