your net:// No-charge sites can make plenty off you

By CHRIS BARTON

Everyone knows there's no such thing as a free lunch. So how does this free internet thing really work?

There are three ways the free providers can make money: through selling advertising banners on their website, by taking a cut on sales of goods and services made online by their customers, and by taking a percentage of the interconnect payments Telecom pays to Clear.

It's the latter that most are at present relying on. They result from a deal struck in 1996 when Clear was entering our deregulated phone market. The wisdom of the time dictated that for every phone call Telecom passes to Clear's network, it would pay 2c a minute. For calls going the other way, the border crossing fee would be 3c a minute.

Telecom was reasonably happy with this arrangement until it noticed far too many calls going in Clear's direction. What was causing the one-way flow was the internet - specifically internet providers using Clear's network to carry the traffic

Last November Telecom moved to correct the anomaly - known in the industry as a "call sink" - by insisting that all internet consumers change to an 0867 prefix when they dialled their internet provider. They also declared that all 0867 numbers would be outside the terms of the interconnect agreement. In other words no border crossing money would be collected.

Clear responded with a redirection of 0867 numbers used by its customers - including i4free and freenet - back onto its network, ensuring that interconnect payments continued to flow. At one stage Telecom disconnected i4free. But it went to the High Court and won an injunction forcing Telecom to reconnect i4free customers and continue paying interconnect money.

Meanwhile, Clear started its own free service, Zfree, so it too could drive more internet traffic onto its network. At present there's a truce, whereby Telecom has agreed to pay Clear $6.75 million for three months in internet interconnect payments, while both try to come up with a better arrangement.

But while they do, the free providers are all getting some much needed cashflow to get their businesses off the ground. By the end of the year, it's likely there will be a new deal. So watch for the free providers to ramp up their online selling efforts.

So far online selling has mainly been of telephone services such as cheap toll calls. But all of the free providers have plans to sell you much more.

I4free will use the demographic information it takes from users on sign-up to target its customers - through banner and pop-up advertisements - with special offers. Similarly freenet plans to develop an "opt-in" marketing program that will ask users if they wish to receive email offers on special deals that fit with their interests. Zfree's plans are less formulated, but it too intends to develop "affiliate programs" with other vendors.

The net effect will be more advertising flashing and more junk mail in your inbox.