According to The Wall Street Journal, the free Internet service will be promoted on Bluelight.com, Kmart's electronic-commerce site. It will also be marketed to consumers in Kmart stores. Yahoo! will be the default home page for the service and the customized version will include several links to Kmart.

Neither Kmart (KMT) nor Yahoo! (YHOO) would confirm the reports. The deal comes after reports that Wal-Mart Stores Inc. and America Online Inc. are considering a similar pact that would promote AOL's service in Wal-Mart stores as well as co-branded Internet access. No deal has been announced, however.

Various reports, citing sources close to the negotiations, said AOL and Wal-Mart were indeed talking about a marketing alliance. Microsoft Corp. has also confirmed the software giant is in talks with Wal-Mart (WMT) about a similar offering.

This wouldn't be the first time that Yahoo! teamed with another company to provide Internet access. The company in 1998 launched Yahoo! Online in conjunction with long distance company MCI, although that offering was shut down when MCI merged with WorldCom.