eBlue, Sacra Blue Online Magazine

Number 206 — September 1999

Ken's Korner

Ken Fermoyle

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Ken Fermoyle owns Fermoyle Publications in Woodland Hills and provides this column at no charge to APCUG member user group newsletters.

'Free' Computers May Not Really Be Free in the Long Run
Which adage do you believe? "Don't look a gift horse in the mouth" or "There is no such thing as a free lunch"? When it comes to taking advantage of many of those "free" computer offers being hyped recently, you'd best consider the latter one.

First came the giveaway offers from Free-PC and others like it. They promise a free computer to those of you who are willing to watch continuous ads. The deals include many restrictions on your Internet activity and require that you agree to answer questionnaires and otherwise give up aspects of your personal privacy.

So, in a sense, you do pay a price for the "free" computer. You lose a great deal of privacy and have restricted Internet access. Anyone with the slightest trace of paranoia won't be comfortable with these deals.

Then came free computers from Internet Service Providers (ISPs) like Gobi and InterSquid. They give you a "free" computer in return for a long-term (30 to 36 months) contract for Internet access service at higher-than-normal rates of $26 to $30 per month. These rates will really seem excessive in a few years for reasons explained below.

Next we got a spate of partnerships between companies like eMachines, Compaq, large electronic retailers and various ISPs or online services such as CompuServe and Prodigy (which are not true ISPs). Most of the latter offers don't give you a free computer after all. Many are like the one Circuit City and Fry's chains have been promoting in partnership with CompuServe. Staples has a similar tie-in with MSN, the Microsoft Network. (Mac fans also are being wooed with offers of "free" iMacs; more on that later.) They offer rebates, usually $400.

The Fry's deal is typical. It includes a $400 rebate on a $499 "eMachines/ Compaq" computer with 366 Cyrix MII MMX-enhanced processor, 32MB of SD RAM, 4.3GB Ultra DMA hard drive, 56KBPS modem, but no monitor. It's a decent, low-end, entry-level home computer, though certainly not cutting-edge technology. You pay $499 up front and wait for the $400 rebate "within 45 days of credit approval ... from eMachines/ Compaq/ CompuServe Internet Service."

Ah, but the cost doesn't stop there. Part of the deal is that you must sign a contract commitment to a 3-year/ 36-month subscription for CompuServe 2000 Internet Service at a monthly rate of $21.95. And therein lies the rub. (You didn't really think that Steve Case, honcho of AOL, which owns CompuServe, would really play Santa Claus, did you? Not blooming likely!)

That monthly cost is 10-20% over the going rates (currently running from $17.95 to $19.95) The kicker is that $21.95 may be double, even quadruple, what industry analysts and other experts project dial-up Internet access will cost in the 'not too distant' future! Some predict monthly access fees may go as low as $5 within a few years, as reported in the Los Angeles Times during July. Why? There are several reasons.

The first is that telephone and Internet gurus report that competitive effects of the Telecommunications Reform Act of 1996 are finally beginning to appear. We have already seen long distance rates drop substantially, to as low as 8 cents or less per minute in some cases. This ultimately means lower costs for ISPs.

The second is that broadband technologies that offer fast Internet access are beginning to show significant growth. More users will turn to DSL (Digital Subscriber Line) and cable access, as they become available. DSL and cable not only offer fast access, the "always connected" benefit and simultaneous multi-user capability, they can be very competitive in cost compared with current dial-up access rates. This is especially true for users who have a second phone line dedicated to modem use because that line can be dropped if you get DSL or cable.

So if you sign a three-year contract for Internet access at $20 or $22 per month and access rates drop to $10 or $12 in 12 or 14 months, your "free" computer won't be so free after all. And don't think you can terminate your service contract early to take advantage of lower rates. Read the fine print. The CompuServe contract "requires repayment of $400 rebate plus a $50 cancellation fee" for early termination.

As Bank of America Securities analyst Kurtis King commented in an L.A. Times Business Section article on July 3, 1999, "These contracts are pretty onerous. There's nothing free about the offers."

How about the FreeMac deal? All details weren't clear at this writing, but it appears that the offers requires a three-year commitment to Internet access with Earthlink at $19.95 per month and submission of a demographic profile. The latter would be used to target advertisements to specific users.

FreeMac plans to distribute 10,000 free machines in October. I have no information yet on what penalty would be invoked if you try to terminate the contract with Earthlink before 36 months have elapsed.

One final point to consider: What happens if DSL or cable access comes to your neighborhood and you're locked into a long-term dial-up access contract? This will be especially galling if others around you are enjoying Internet connections that are four to 10 times faster at roughly the same price, maybe even less, than you pay for the slower connection!

Author's Note: Just as I was finishing this article, I received an offer of Internet access through MSN, the Microsoft Network, at $11.99 per month. The deal is available through Costco, a large membership retailer, and requires a three-month prepayment ($35.97), but no long-term contract. Take this as an omen of things to come.

Ken Fermoyle has written some 2,500 articles for publications ranging from Playboy and Popular Science to MacWeek, Microtimes & PC Laptop. Ken's Korner, a syndicated monthly column, is available free to User Groups. To subscribe or for permission to reprint this article, contact Ken Fermoyle.