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Wednesday, 6 December, 2000, 12:40 GMT
Freeserve: UK internet pioneer
Freeserve web page
In the two years of its existence, Freeserve has established a reputation as a pioneer of internet service provision in the UK.

Freeserve was the first company to offer UK internet access for the price of a phone call, and its chief executive John Pluthero has won praise for establishing the company as one of the most recognisable online brands in the UK.

Freeserve was set up by Dixons, one of the UK's largest electrical retailers, which has long made clear its intention to sell its pioneering subsidiary.

Momentum for a sale has been building all year - with several potential bidders vying for the company - as analysts have warned that for Freeserve to become a European player, it needs more cash.

Mr Pluthero had hinted as much when he questioned earlier this year whether the company had the scale to go it alone.

The internet service provider was launched by the Dixons Group in September 1998.

Money game

The tie-up should in theory give the firm a chance to get the money it needs to develop new services as the internet market expands towards faster broadband connections and the mobile internet.

Freeserve's original business model was to make money from phone-call revenue.

But as the costs of these calls have dropped, the firm has had to look for other sources of revenue, namely in advertising.

The nature of the internet service provision market has also changed, with many other providers offering unmetered access, which allows unlimited surfing time for a flat-rate monthly fee.

Estimates are that Freeserve only has enough cash to last a year.

By contrast, its new parent has an estimated two billion euros at its disposal.

Share price turbulence

Freeserve has also been vulnerable to turbulence in share markets globally.

On 2 August 1999, Freeserve was listed on the London Stock Exchange and Nasdaq.

Since then, it has enjoyed the highs and lows of the technology share price rollercoaster.

Its shares slipped initially below its 150p flotation price, before soaring above 900p at the peak of the internet 'bubble'.

Since March they have fallen back, to stand at 133.5p on Wednesday afternoon.

This share price turbulence has meant that Dixons is ultimately securing a far lower price for Freeserve than had originally been thought possible.

Germany's T-Online - owned by Deutsche Telekom and one of Europe's largest ISPs - had originally been in the running for a deal, which valued the shares at 600 pence each.

Sights on Europe

What the deal does make clear, say analysts, is that both Freeserve and Wanadoo are aiming at the European market.

They are not the only service providers to have their sights on Europe. Italian service provider Tiscali bought troubled Dutch ISP World Online, while T-Online has also bought Spanish provider Ya.com.

In Wanadoo, Freeserve has a partner with a high profile parent - France Telecom.

France Telecom also owns Orange, the mobile phone company, and has a 20% stake in NTL, the cable operator.

Some speculation exists that Freeserve could now benefit from a closer relationship with Orange, in the style of that enjoyed by Itineris - the French mobile operator - and Wanadoo.

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See also:

31 May 00 | Business
Dixons to 'auction' Freeserve
06 Dec 00 | Business
French rival to buy Freeserve
19 Oct 00 | Business
Freeserve ejected from FTSE 100
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