Business News – Qwest Offers Free Internet Access with Bundled Services

Posted: 10/1999

Qwest Offers Free Internet Access with Bundled
Services
By Liz Montalbano

In a move that analysts say is the future of bundled services, Qwest Communications
International Inc., Denver, announced it would offer free Internet access to consumers who
purchase special long distance calling services.

Qwest’s communications package consists of free unlimited dial-up Internet service and
250 minutes of domestic long distance calling service for a flat rate of $24.95 per month.
Any domestic minutes beyond the first 250 each month are charged at 10 cents per minute.

Jeffrey Kagan, an Atlanta-based telecom industry analyst, says Qwest’s offer represents
a new shift in telecom services that mimics retail packages, in which an inexpensive
service or product will be offered free when bundled with others.

"We are seeing the beginning of a new wave of marketing voice and data
services," he says. "Like in the retail environment, communications companies
will start giving away low-cost services as loss leaders to get customers to sign up for a
profitable package of services."

He adds that, soon, long distance service also will be offered free when bundled with
services that are more profitable for carriers.

"The profits of the future will come from bundles," Kagan says.

Qwest is certainly not the first company to offer free Internet access. Other U.S.
companies, including Netzero Inc., Westlake Village, Calif., and AltaVista Co., Palo Alto,
Calif., offer it free as well, but rather than bundling it with other services, they are
using advertiser sponsorship to subsidize the cost of the service.

Overseas, some European service providers act on a revenue-sharing model, in which an
Internet service provider (ISP) and a telco share revenues on the local connection rather
than having an end user pay two charges–one to the telco and one to the ISP for
access–to offer free Internet access, says Casey Freymuth, president of Group IV Inc.,
Phoenix.

According to Freymuth, U.K.-based company Freeserve, an online venture between
electronics retailer Dixons Group plc and Energis, was the first company to provide free
Internet access in this way in Europe. He says the move ousted America Online Inc. (AOL),
Dulles, Va., from its No. 1 spot in just a few months, forcing the U.S.-based company to
buckle to Freeserve. "This is a multibillion issue to American Online in the United
States. They said that they’ve got no plans to go free, but they had to buckle to
Freeserve in the U.K.," Freymuth says.

He adds that if Redmond, Wash.-based Microsoft Corp. begins to offer free Internet
access, a plan rumored to be in the works, AOL might have to do the same in the United
States.