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February 28, 1996

AT&T Will Offer Free Access to the Internet

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    AT&T said Tuesday that it would offer its telephone customers five hours of free Internet access each month for a year, bringing computer network service a step closer to becoming a utility like electricity or water.

    In addition, AT&T said it would offer residential customers unlimited Internet access, including electronic mail and nationwide phone directory services, for less than $20 a month.

    "The Internet is going to take one further step toward being a mass medium," said Eli M. Noam, director of the Institute for Tele-Information at Columbia University in New York.

    The Internet service will begin in March for the estimated 16 million to 20 million AT&T phone customers who have a personal computer and a modem. AT&T said it would provide customers with free software for using the World Wide Web of the Internet and round-the-clock telephone technical support.

    AT&T's rivals, MCI and Sprint, also have programs to provide Internet access, but their offerings are not as ambitious as the one AT&T aimed directly at mainstream America on Tuesday.

    "This is the beginning of the end of the telephone as we know it," said Paul Saffo, a director of the Institute for the Future, a research center in Menlo Park, Calif. "There's now this race on to use that phone line to connect you to more than other people, and to do more than voice. Now they are committed to turning the phone line into an information utility conduit."

    By its aggressive move into the consumer market, AT&T made clear that it views the Internet as more than a passing fad. At least 15 million Americans are connected to the Internet and on-line information services today, but that number pales next to AT&T's 80 million residential phone users and 10 million business customers.

    Besides MCI and Sprint, the regional telephone and cable television companies are also moving aggressively to offer their residential customers access to the Internet, which is regarded as an increasingly important conduit for global communications, electronic commerce and entertainment.

    Unlike most of the estimated 1,000 companies that have sprung up around the country in recent years to offer Internet access, the telephone and cable companies have the advantage of already having Internet-capable lines into millions of homes.

    But AT&T's move is the most ambitious push yet and one that will undoubtedly shake up the Internet industry. While a few Internet providers offer unlimited dial-up access for as little as $20 a month, few of them offer free software, no set-up fees, round-the-clock technical support, 200 local dial-in ports around the country and AT&T's promise to all but eliminate busy signals.

    And while the major on-line information services typically entice customers with offers of several free hours of connection time each month, the hours are available only after the user pays a monthly fee, typically $9.95. AT&T says that the one-year trial offer for its Worldnet Services will be truly free.

    "This will be a big draw for people who might have been holding back from signing on to the Internet," said Minda Morgan Caesar, editor of Internet Week, a newsletter published in Potomac, Md. "A lot of people know and trust the AT&T name, whereas they may never have heard of Netcom or Psi."

    Netcom On-Line Communications Inc. of San Jose, Calif., and Psinet of Herndon, Va., are two of the largest of the hundreds of Internet-access companies that will be competing with AT&T Worldnet Services.

    Also in AT&T's sights are America Online, which offers Internet access to more than five million subscribers, Compuserve, Prodigy, the Microsoft Network, and scores of small entrepreneurs who operate Internet businesses across the country.

    "Traditional Internet-service providers are going to feel the pinch," Ms. Caesar said. "They can't really compete with a year of free service. And you can't get unlimited access on the on-line services for $19.95."

    Officials of some of those companies professed only modest concern Tuesday about AT&T's move.

    "We think the Internet-access market is highly analogous to the development of the personal computer industry in the early '80s," said John Sidgmore, president of UUNet Technologies of Falls Church, Va., one of the oldest and largest Internet-service providers. "If you look back, the guys who won the PC business were really the little guys like Apple and Intel and Microsoft, not the big companies."

    Sidgmore described his company as "the biggest of the little guys, but we're a small company compared to AT&T, MCI or Microsoft." UUNet, which offers Internet access to businesses rather than individuals, reported $94 million in revenue last year, while AT&T had $80 billion.

    "This is a fantastic development for the Web as it hurtles toward critical mass as a commercial medium," said Donna Hoffman, professor of management at Vanderbilt University. "To achieve critical mass, you have to get people on line. We're already seeing the diffusion of the hardware, software and modem bundle into the home. What hasn't been moving along so quickly are bandwidth and access. Now, with Worldnet, ease of access for the general consumer is here much quicker than people thought."

    Noam of Columbia tempered his outlook somewhat. "I wouldn't expect two years from now, just because of this, that everyone will be on the Internet," he said. "Dramatic change usually doesn't happen that way. It's usually steady and accelerating growth."

    But he also said: "This means the Internet is going to get mass-usership middle-of-the-road Ma-Bell-type customers. They won't be the Internet experts or the techno-nerds anymore."

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