[buug] Free ISPs: Party's over.

[Feedlebom]

Sorry for the rather voluminous message this morning, but a bunch of you
have some interest in free ISPs.  It appears that the party's over.

First up, a letter that appeared in my mailbox regarding AltaVista's free
net.  

That's followed up by a news story regarding a change in the way
telephone calls are billed.. this dosen't help the free ISP's business
model.  Currently, alternative local exchange carriers like Worldcom and
ICG signed up ISPs as a way of getting calls to terminate in their
networks, therefore making them eligible to recieve money from the
incumbent (Bell) telephone company.  That's a-changin'.

Finally, a news story about Bluelight.com and Spinway.  The story raises
questions on whether or not the entire "free ISP" model is even workable.

I'll shut up now.

-Fedl

----
Important Notice to Users About AltaVista Free Access 

Dear Member: 

We regret to inform you that AltaVista’s free Internet access will
terminate service on December 10th. AltaVista has been forced to
discontinue this offering because the company who provided the service and
telecommunications infrastructure for it, 1stUp Corp., is going out of
business. This change will not affect the availability of our search
services at AltaVista.com.

AltaVista thoroughly investigated finding another supplier to provide a
free Internet access service. However, we were unable to find a company
that was able to meet the needs of our Members.

Special No-Risk Offer: 3 Months Free from MSN 

We have made special arrangements with MSN to assist U.S. based AltaVista
Members who would like to transition to the MSN® Internet access service.
For a limited time, users who sign up for MSN will receive three months
free of unlimited Internet access. Thereafter, the cost of the MSN service
will be $21.95 per month. Your MSN subscription will include:


MSN Explorer, the new all-in-one software from Microsoft that makes it easy
to get more from the Web

24/7 toll-free support

Support for up to nine users, each with their own settings.
Or you can choose to get MSN HighSpeed access with MSN DSL service and get
a free modem and installation at no extra charge with a one-year term
commitment. Certain offer restrictions apply. Click on the link below for
details. Note: Three-month free service offer does not apply to MSN
HighSpeed access. 

To take advantage of these special offers, please click on the following
link:

http://essentials.msn.com/access/1stup.asp

Please be advised that AltaVista has no affiliation with MSN and does not
assume any responsibility for its availability, quality or terms of
service. 

AltaVista Search

We look forward to continuing to provide you with our patented Search
technology for finding information on the Web and product research through
our shopping-comparison guide at http://www.altavista.com.

On behalf of all AltaVista employees, we thank you for choosing AltaVista. 

Sincerely, 

Ken Neibaur, Vice President, Marketing
AltaVista

Go to AltaVista home page.
------------
Tuesday November 28 3:56 PM ET
FCC Poised to Close Loophole on Internet Traffic Fees 

By Jeremy Pelofsky

WASHINGTON (Reuters) - Federal regulators will next month likely close a
loophole that has allowed some companies to set up telephone centers to
carry Internet traffic and reap millions of dollars in fees from regional
telephone companies, industry sources said Tuesday.

Under the present system, known as reciprocal compensation, established
local phone companies like BellSouth Corp. (NYSE:BLS - news) and Verizon
Communications (NYSE:VZ - news) have been paying fees to competing
telephone carriers for connecting calls, but have not seen a dime in return.

And with the rise in consumers connecting to the Internet from home, some
competing carriers have been signing up Internet service providers (ISPs)
to be the routing carrier of choice to cash in on receiving compensation
from the incumbent carriers.

But since the Internet does not return calls, the established phone
companies end up paying about $2 billion in compensation this year to the
rivals without seeing reciprocal fees.

The Federal Communications Commission (news - web sites) will over the next
two years likely move to a system where the telephone company that bills a
call, whether it is from a landline, wireless or to an Internet system,
keeps the money, a process known as ''bill and keep,'' Legg Mason analyst
Daniel Ernst said in a research note Monday.

``While it is possible the FCC could release the order at its next open
meeting on December 7, we believe that it is more likely the order will be
released under circulation later in the month,'' Ernst said in his report.

The plan is being debated among the five FCC commissioners to determine the
period for phasing in the new system and what limits to impose on the fee
payments before eliminating them altogether, an industry source said
Tuesday.

FCC officials, including the agency's chairman William Kennard and the head
of the common carrier bureau, Dorothy Attwood, have said they wanted to
resolve the reciprocal compensation issue before the end of this year.

``Reciprocal compensation as it exists today is nothing but a loophole that
allows a few unscrupulous companies to drain money out of the system at the
expense of all consumers,'' said Matthew Miller, a spokesman for SBC
Communications Inc. (NYSE:SBC - news), the nation's second biggest local
telephone company.

``The chairman has said that the Commission will take action by the end of
the year and we look forward to anything they can do to close this
loophole,'' he said.

Other companies poised to benefit from the move include Teligent Inc.
(NasdaqNM:TGNT - news), WinStar Communications Inc. (NasdaqNM:WCII - news)
and XO Communications Inc. (NasdaqNM:XOXO - news), which ``could experience
cost reductions that amount to nearly 2 percent of revenue with the full
implementation of bill & keep,'' Ernst said.

The move to bill and keep also follows failed attempts by Congress to solve
the problem, an issue pushed hard by the regional Bell companies. While
lawmakers are expected to deal with some spending issues when they return
next week, reciprocal compensation is not expected to be among them.

The FCC must still work out when to begin bill and keep, how to phase in
the system, what pricing mechanism to use during the interim period and
determine the scope of calls covered under the plan, Ernst said.

If the agency adopts a cap system during the two-year phase-in, the
revenues from reciprocal compensation would drop by 66 percent next year,
from $2 billion to $685 million, Ernst said, adding that long-distance
carriers and competitive local carriers would see the largest decline in
revenues. 
-------------------
SAN FRANCISCO (AP) -- BlueLight.com, Kmart's online alter ego, Monday took
over a failed business partner that provided free Internet service to
millions of computer users, preserving a vital customer link in the heart
of the holiday shopping season.

The move assures that about 6 million people who surf the Web through a
network created by Sunnyvale, Calif.-based Spinway Inc., will continue to
have free Internet access at least through year's end.

After abruptly closing its doors Friday and laying off the last of its 100
employees, Spinway appeared poised to pull the plug on its service until
BlueLight stepped in Monday. About 30 Spinway workers will help run the
Internet service for BlueLight.

San Francisco-based BlueLight plans to evaluate whether it should charge
for the Spinway service early next year, said company spokesman Dave
Karraker. ``For now, we are viewing this as a necessary marketing expense
to reach customers.''

BlueLight didn't divulge financial terms of the takeover, but the company
will probably incur its biggest expense running a network that provides
dial-up access to the Internet in 5,000 cities.

Spinway is the latest in a line of free Internet service providers, or
ISPs, to run into trouble amid rapid growth. Spinway was adding about
30,000 users each day to its service just before its failure.

Companies offering free ISPs believe they can make money by selling a
barrage of advertising shown to Web surfers using their services. However,
that formula hasn't worked so far.

Other free ISPs struggling to survive include 1st Up, which is owned by
CMGI (NasdaqNM:CMGI - news), and NetZero (NasdaqNM:NZRO - news), said Lydia
Leong, a senior analyst for the Gartner Group in San Jose.

Westlake Village-based NetZero, a publicly traded ISP, lost $91 million in
its most recent fiscal year ending June 30.

``This isn't a good time to be in the free ISP space,'' Leong said. ``The
jury is still out on whether this business model can work at all.''

Founded in 1999, Spinway provided free Internet access through partnerships
forged with BlueLight, Costco, Hewlett-Packard, Ace Hardware's
OurHouse.com, Spiegel Catalog, Barnesandnoble.com and NBCi.com.

Spinway viewed its alliances with retailers like BlueLight and Ace Hardware
as a way to reach budget-conscious households that remained off-line to
avoid the monthly bill, roughly $20, typically charged by Internet service
providers, or ISPs.

Since its launch last year by Kmart, BlueLight has accounted for most of
Spinway's traffic. About 5.2 million people signed up for Spinway's free
Internet service offered through BlueLight.

BlueLight offered to continue providing free Internet service to customers
at Spinway's other partners, if the businesses paid a fee. Costco, Spiegel
and Barnesandnoble.com, accepted BlueLight's offer, Karraker said. 





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