NTL 'is Freeserve favourite'

Competition is heating up for Freeserve

Cable television company NTL is the favourite bidder for the UK's largest internet service provider, Freeserve, according to a report in the Sunday Telegraph.

High street retailer Dixons is auctioning its 80% stake in Freeserve for about £6bn.

The paper said that NTL was regarded as a stronger partner for the company compared to Germany's T-Online, which has been tipped as the likely winner.

"A takeover by NTL would give Freeserve a lifeline by providing it with broadband technology," the newspaper quoted an industry analyst as saying.

"The idea is to package Internet entertainment and telephony all in one bundle."

But T-Online, which is Europe's largest internet service provider, has the backing its owner, Deutsche Telekom in any bidding war.

The German telecom giant has a $94bn acquisition warchest.

The winner will gain a foothold in the competitive UK market, where Freeserve is one of the leading ISPs with nearly two million subscribers.

T-Online's global expansion

T-Online has been seen as a likely bidder because it needs to expand globally to ensure further growth, now that it has secured its German subscriber base.

T-Online has nearly five million subscribers.

Freeserve was effectively put up for sale when Dixons appointed investment bankers Goldman Sachs to review its holding.

Freeserve has come under threat from the spread of unmetered, flat rate telephone access.

The company derives most of its revenues from a share of the telephone line charges for its services.

The internet industry has been rapidly consolidating following the merger of America Online and Time Warner in January.

In the latest moves, Spain's Terra Networks, a subsidiary of Telefonica, bought US search engine Lycos for $12.5bn (£8.4bn).

France Telecom is preparing to float its internet subsidiary Wanadoo, while Telecom Italia has just merged its internet service with its biggest rival.