Sector Spotlight: For Internet Service Providers the Issue Is Free ISPs

Free worked for television. But can it work for the Net? The Internet service provider industry is still struggling to figure that out.

More than 10 million people have signed up for free Internet access from four well-funded operations over the past year. Though these ventures' ultimate success is still unclear, their potential impact on the industry isn't: With any success, they easily could nibble at subscriber growth and margins at industry stalwarts such as America Online (AOL Quote), which has 18.6 million domestic subscribers, and EarthLink (ELNK Quote), which, with last week's deal to acquire ISP OneMain.com (ONEM Quote), will end up with 4.2 million subscribers.

Whether the free ISPs can succeed appears to be a question best-answered by watching NetZero (NZRO Quote), the only publicly traded ISP that thinks it can make a business purely out of connecting Americans to the Internet for free. With its stock down 80% from its December high, the company is encountering the same skepticism confronting other cash-burning Internet companies. But if it can pull off its business plan, it could lead free Net access out of its niche.

Giving It Away

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