Adelaide-based Adam Internet has become the first ISP to trial a prototype of network locked ADSL modems from NetComm.
Similar to the sim-locks used on pre-paid mobile phones, the modem will be locked into the service provider, rendering it unusable on any other network.
Adam Internet operations officer, Carl Noutz, said the hardware would be a way to increase customer loyalty.
"If we give a customer a modem setup free on our network, then we want to be able to ensure that a customer accesses our service with the equipment that we supplied and not a competitor's," he said.
He said the ISP was two months into a three-month beta test of the modem.
NetComm managing director, David Stewart, said the new technology was also a way for ISPs to cut down high subscriber churn rates.
"The ISP is going to invest money in the product upfront, then give it away, but that will attract customers," he said. "They will make the money back over a twelve-month contract and the consumer will be happy because they get the product for free."
The quality of plan offerings could also increase as a result of the technology, Stewart said.
"I think this could change the nature of the contracts that ISPs offer," he said. "The more ISPs that look at this innovation and think about it, the more will follow through."
IDC research director for telecommunications, Landry Fevre, said network locking modems was not the way to reduce customer churn.
"Whether you are locked into a contract or not, the value is in whether you are getting a good quality connection," he said. "This is really a marketing mechanism to avoid churn, but it's completely artificial. If people are happy with their service, then they will stay."
End-users were better off buying their own modem, then shopping around for a connection, Fevre said.
Stewart conceded that there would likely be people unhappy about the lock-in.
"I'm cynical enough to know that there will always be someone who is not happy that they can't use the modem on another network, but it is no different from the pre-paid mobile phones you can buy today," he said. "If you are getting the hardware for free, you should be loyal and honest to the ISP which provided it for you."
Stewart said no modems in use by current Adam Internet customers were networked locked.