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ISP offers free PCs to subscribers

Think $29.95 (£18) a month is a bit steep for Internet service? What about if it includes a free PC?
Written by Margaret Kane, Contributor

That's the deal a New Hampshire ISP is offering. The company, Empire.Net, is giving subscribers a 300MHz white-box Intel system with 32MB of RAM, 2.1GB hard drive, 24x CD-ROM, 56K v.90 modem, and a 14-inch monitor. The catch? They commit to using Empire.Net for three years.

Mike Salvanelli, sales manager at Connect Plus, Empire.Net's parent company, said the company has been using a similar model for cellular phone service for about four years. "With prices plummeting on hardware, we were able to do it," he said.

The company began advertising the deal in last Sunday's Boston Globe. Response has been "outstanding," Salvanelli said.

Of course, that success rate is relative. The service is being sold through three Boston-area computer resellers, some of which have signed up as many as 14 new customers in a day. The offer is only available in New Hampshire and eastern Massachusetts, although the company plans to expand to western Massachusetts and Rhode Island.

PC prices have dropped precipitously in the past year or so, with some name-brand PCs now priced below $600 (£365). Several PC makers have signed deals with ISPs to give consumers rebates of up to $100 when they subscribe to a service.

Industry watchers have said it was only a matter of time until ISPs were giving away PCs. While Empire.net appears to be the first ISP to give away PCs to subscribers, other ISPs have offered free services to subscribers, though that has seemed more popular in Britain than in the US. Free-PC.com, an idealab! startup, recently caused a frenzy when it announced that it would give away systems to 10,000 people who were willing to watch constant on-screen advertisements.

The gimme may be a good way for ISPs to lure customers in, but since margins on Internet service are so small, it won't be an easy way to make money, said Scott Miller, an analyst at Dataquest. "The trick with the cell phone model is that there's enough margin in the service that you can do that. The issue with PCs is you've already got relatively high penetration and you're not making a lot of money on the service," he said.

But it could help prevent "churn," where customers switch frequently between service providers. "We tend not to try to bundle extras," said Ed Hansen, a spokesman at MindSpring Enterprises, a large ISP in Atlanta. Mindspring charges a start-up fee as well as a monthly charge, although it sometimes waives the start-up fee. "You'll always see bundling happening, but it's unusual to see something so high-priced rolled into something that's a fairly low subscription price, Hansen said. "The question is, during these three years are they losing money on these customers?"

Dataquest's Miller said the bigger worry could be for PC makers, who may be seeing their product become just a toaster. "The thing that should concern the PC makers is that in this case, consumers are not focused on the value of the hardware, they're focused on the value of the service," he said. "The brand equity begins to shift to the service provider. The hardware is increasingly a commodity, where consumers say 'I don't care what kind it is, I just want the service'".

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