found this

"Hello All,

I work for CloudAtCost.com
The business model was carefully thought out to figure the only way we felt possible to provide a one time fee for a hosted server. You can look us up - check out what we have done with freephoneline.ca - There was a post on RedFlagDeals for 5000 beta accounts in 2007, and thats how we launched.

Freephoneline.ca sold/sells $50 one time phone lines, started in 2007 and still offering the same great service.
(profitably) Actually some of Freephoneline's work has got us where we are today.

One of the philosophies we have is to own and pay for the network, remove any recurring fees by renting other peoples stuff.
This leaves little recurring cost - which translates to savings.
Deliver strong value and savings for Canadian consumers, in doing so - some of them decide to buy other things from us and be life-long customers.

How can a server be free? / or of little one time cost, I will share how it is done.

First buy 100's (or 1000's) of physical servers with piles of CPU cores, mountains of ram, for the best deal possible, and pay cash.
We owe nothing on the gear, it's not leased. They are all on the rack, so if they are sold now - or not sold they cost about the same monthly overhead to us. Specifically we have 40,000 VPS's worth of equipment on the rack (so far).

Next, build a very efficient, and redundant storage infrastructure, use SSDs to make people happy - do not use expensive name brand storage solutions (or you are dead in the water and out of business.)
Use something groovy, say one of the network file systems from the OpenStack project.
Something that scales endlessly.

Then buy or build some of your own data centres, ( www.rackanddata.com + www.data-vault.ca + Fibernetics.ca )
Cost advantage - we don't have to pay $600 /$900 / $1200 per rack.
(actually we don't charge ourselves anything for space, we use some of the empty racks - so its $0/mo )

Then build 30,000 Sq/Ft of solar on your roof so you can produce 4 x the electricity you use - to sell to the grid (and be green).

Then Build a national network with 100's of thousands of Canadians who use and rely on it daily (Fibernetics.ca + Worldline.ca) One of Canada's largest private CLEC's
The idea here is the access to bandwidth at this volume, is really quite in-expensive and sort of already paid for.

Then, we consider a small % of the people find out who we are and buy internet from us for their homes and office, or maybe even buy an office phone system.
(actually we sold $200K worth of phone systems this month from people using our cloud.)
... this good will we built is worth more then just about any regular fee per month.

Summary;
- colocation space, free
- bandwidth, almost free
- server hardware, far less then the $35 - maybe even under $10 ;-)
- power - hedged,
- profit margin on the servers, we invest it, in infrastructure - usually in things that have a +30% return - so in effect we make our own recurring income on the server - to build a better company, which in turn offers better deals.
- goodwill to customers - just like master card, Priceless.

It's so good, we were just going to offer them free... but we knew no one would believe it.

Cheers,"