Wendy M. Grossman is co-editor of Skeptic magazine and was a judge for the Online Journalism Awards. The full text of her last book, net.wars, is online for free. She is a regular commentator for IntellectualCapital.com.

ENGLAND -- Never underestimate the power of the miraculous word, "free." At least in the United Kingdom. Here it is akin to the word "bargain" in the United States.

Why is freer better?

This past week, all of Britain has been going batty again over free Internet access. Now, Americans sitting comfortably at home with flat-rate local telephone phone bills and fancy ADSL lines or cable modems may find this phenomenon mystifying. Americans do not know two things. First: In most of the rest of the world, people pay by the minute even for local calls. Second: These things add up.

Britain going batty over free internet access

Two years ago, before I managed to finagle a special arrangement, my local -- local, not including long distance or anything fancy -- phone bills hit £500 a quarter. That is £2,000, or about $3,500, a year at today's prices, on local phone bills alone. True, I am a journalist, and I write about the Internet, so I have to make a lot of phone calls and log on a lot. But bear in mind that a lot of my daytime Internet access at that time was done via automated software that grabbed all the waiting messages, uploaded my replies and disconnected as quickly as possible. (We call this type of software an "offline reader" and any U.S. Web site that seriously wants to attract international participants needs to find a way of providing this offline-reader compatible service; it also saves time, which no one ever has enough of, by threading the messages for faster and easier reading.)

In my case, saving £10 to £15 a month on the cost of Internet access would not have made much difference, so I did not see at first why everyone was so excited about free Internet access. But for the average Internet user logging on at home only in the evenings and then for relatively short times, that £15 a month might pay for 100 minutes of Internet access. That is a substantial savings, especially if you bear in mind that British incomes generally are lower than their American equivalents and most parts of British life (food, music, cars) are much more expensive than their counterparts in the United States. I went to a movie in central London the other week: $13.50, plus $6.50 in transport there and back on the Underground, a half hour each way.

The FreeServe phenomenon

None of that, however, explains the appeal of free services to the financial markets. FreeServe, for example, the first free ISP in Britain and a subsidiary of the mainstream retailer Dixons (think fancy Radio Shack), went public some months back and currently sports a market cap of $9 billion. You might find this bizarre, particularly when I tell you that because of the corporate structure, Dixons gets the benefit if FreeServe makes the money, but suffers not at all if its subsidiary loses money (not to mention that FreeServe had only been open for business for nine months or so when it went public).

But FreeServe does have revenues and plans to make more. For one thing, the exigencies of opening the British telecommunications market to competition mean that phone calls over certain types of networks attract payments from British Telecom (the existing giant) to the emerging phone companies. These payments are due to be phased out in 2002, but in the meantime FreeServe makes money on every free minute of Internet access it sells (because users rack up the phone bills). Knowing this income will disappear, FreeServe has been relentlessly pursuing e-commerce partners and building up its portal, now the number one in the U.K. (Yahoo! U.K. is second).

Once FreeServe launched last September by giving away CDs by the thousand, every other service provider competing for the mass market was more or less doomed to follow suit in some fashion. America Online introduced a special set of phone numbers to reduce charges; free services sprung up all over the place to take advantage of the interconnection payments; and Internet usage in England is, finally, seriously taking off.

According to a recent Datamonitor report, European Internet service providers only make 16% of their revenues from subscription fees, anyway. Interconnection payments account for 22%, by contrast. Durlacher, in a report that surprised no one with any online experience, suggested that Internet use would increase from 130 hours a year to 386 hours a year per home online user if Britain had unmetered Internet access. A December survey by MMXI Europe BV found that British users spent an average of four hours online in October, as compared to an average five-and-a-half hours a month for U.S. users.

The benefits of deregulation

The latest free deals involve signing up for telephone service with a cable company like NTL or Telewest: Spend a set minimum on non-Internet phone calls on that line, and you qualify for unmetered Internet access. Me, I am waiting anxiously for ADSL and its higher speed. Trials are still underway, but the rumor is we should have it ... sometime this year.

These services are making all the difference to the opening up of the electronic era. Without deregulation, I would still be online, of course (I got online in 1991), but I would be paying more than $4,000 a year in phone bills. As it is ... well, here we are.