Rumors have been rife that Google plans a nationwide free Wi-Fi network — and it looks like Microsoft is jumping in as well. Yesterday the company announced that it was partnering with to build a citywide Wi-Fi network in Portland, Oregon.

The San Francisco Chronice reports that Microsoft will team with Mountain View-based MetroFi to build a free, ad-supported network in Portland. Users will have to put up with a one-inch ad bar across the top of their screen, unless they’re willing to fork out $20 a month for no-ad access.

The network will cover 134 square miles, with part of downtown Portland getting access by year’s end, and the whole network to be fully functional between 10 to 18 months afterward. Network speed is moderate — 1 megabit per second.

Stefan Weitz, director of planning for MSN told the newspaper that if the project is a success, you can expect to see Microsoft go into the market full-bore.

“We’re seeing a ton of cities looking at doing (municipal wireless projects),” he told the newspaper. It’s a channel we’re not in but we’re interested in participating in.”

I don’t think this project is all about the money — it’s also a way to protect Microsoft against Google. Expect to see Google create more Web-based desktop-type software like word processors and spreadsheets. Teaming those Web-based apps with a nationwide free network could put a dent into the market for Office.

So even if MIcrosoft doesn’t make money on wireless networks, if it is able to keep Google from dominating the free wireless market, it will judge its move a success.

As for us users…there couldn’t be any better news than having the two tech giants fighting to give us free wireless services. Ultimately, net access will be available everywhere, and this is just one more way to make sure that happens sooner rather than later.