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Failing Freewwweb Folds

Freewwweb LLC Thursday filed a motion with the U.S. Bankruptcy Court for the Southern District of New York seeking a Title 11 order authorizing debtors to line up and issue their terms.

At the front of the list is Juno Online Services Inc. The national ISP that on Thursday announced it would start transferring WorldSpy's 260,000 free subscribers to its membership, is poised to pick up the same deal for Freewwweb users.

According to court records, Juno seeks to gain approval for the sale of Freewwweb's domain names and establish terms for the referral of the defunct free ISP's subscribers.

Although Freewwweb maintains it has millions of subscribers, the actual number of users Juno would pickup in the deal remains unreported.

Freewwweb is a wholly owned subsidiary of Smart World Technologies LLC. In the summer of 1996, it became one of the first national providers to unleash an advertiser supported free Internet access scheme. Smart World Communications then spun off Smart World Technologies LLC, which owns Freewwweb.

The free ISP phenomenon is a European export, where Internet access remains a predominantly metered service.

According to International Data Corp., the free ISP business model remains critical to European access, but is not without its flaws in the U.S. Internet economy.

James Eibisch, IDC European ISP Markets research manager, said the free ISP model initially flourished in the U.K. due to a combination of higher local call charges and advantageous revenue sharing deals that allowed the regions ISPs to build their business around call revenues, rather than service subscriptions.

Eibisch added that while free access in the U.K. is now the standard business model, U.S. free ISPs required diversified revenue streams to survive.

"The free ISP model is, however, not without flaws," Eibisch said. "As dialup prices decrease, ISPs will be forced to look elsewhere for revenue, the obvious alternative source being advertising. The provision of value-added services, such as online banking, shopping, or trading, will also compensate for the loss of call revenues."

IDG research determined that despite the strong growth of free services and the rapid conversion of major ISPs to free access models, it is unlikely that all services would be offered for free.

Eibisch said that the lack of a formal contract between the user and ISP and the absence of payment means that customer churn is inevitably higher for free service providers.

"Users of free ISPs have little reason to remain with an under-performing provider other than reliance on that provider's value-added services or unwillingness to change e-mail address and, or URL," Eibisch said.

"Additionally, again due to the lack of ongoing subscription charge, accounts can be underused," Eibisch continued. "Faced with high churn rates and lack of service use, free ISPs must confront the problem of driving up site traffic via advertising, commerce, and pay-for value-added services."



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