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Jupiter: Free ISPs Won't Replace Dial-Up Access

According to a new report by Jupiter Communications Inc., conventional Internet service providers will not be displaced by free Internet access anytime soon.

In the report, Jupiter (JPTR) contends that free ISPs may be expected to serve more than 13 million ouseholds by 2003, but that free Internet access would only diversify revenue models for business and provide alternative service options for online consumers.

Jupiter reports that of the 13 million worldwide households utilizing free Internet access by 2003, only 8.8 million US households would use a free ISP as their primary access to the Internet.

While the free Internet access market sector continues to grow, Jupiter estimates that the free ISPs would represent about 13 percent of the total US online consumer market. In essence, free ISPs would fail to displace traditional paid access business models. All the same, the market shift would open the door to more flexible offerings from ISPs and provide new opportunities to affinity groups.

Zia Daniell Wigder, Jupiter senior analyst and director bandwidth and access strategies, said consumers perceive free services as a niche offering, not a high-spped connection to the Internet.

"Most online consumes are more concerned about download speeds and reliability than cost," Wigder said. "Growth of the free ISP market is expected to continue at a fast pace, but cannot be compared with growth in paid ISP services."

Jupiter expects free ISP accounts to mirror the trend of free e-mail, in that consumers will maintain several free ISP accounts simultaneously, but are likely to use only one or two on a regular basis.

"Many of the free ISP subscribers will be duplicates." Wigder said.

While many different business models have emerged, most free ISPs rely on advertising revenues to support their business. Yet free ISPs are expected to capture just $901 million in advertising revenue by 2003, according to Jupiter's report.

Owning only 8 percent of total online advertising market, Jupiter believes that free ISPs must qualify subscribers better and provide advertisers with a highly targeted user base in order to generate sufficient premiums for advertising to cover the cost of service.

Widger said new players looking to subsidize the cost of access should consider diversifying their revenue streams beyond advertising, capitalizing on online commerce and even charging reduced access fees as a way to drive up overall revenues.

"Jupiter expects to see more ISPs and other Web ventures unveiling free or low-cost ISP services as part of larger offerings, Wigder said.

"In fact, certain specific categories of online ventures, including lifestyle consumer brands, affinity portals, big-ticket retailers, and financial services firms, can reap benefits from rewarding consumers with Internet access-in the form of a private-label service or a partnership with an existing ISP," Widger added. "These players can establish longer-term relationships with consumers by offering ISP services."

The report is good news for ISPs struggling with the cost of adding new customers in search of enhancing their service offerings.

Because U.S. access is free of per-minute telephone line charges, domestic service providers may reap the rewards of enhanced profits as designer and brand name Internet access and email addresses are provided as a free or low-cost service to e-commerce clientele.