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Tuesday, September 28, 1999 Published at 12:59 GMT 13:59 UK

Business: The Company File

Freeserve users - and losses - up

Subscribers are still signing up to this service

Freeserve is connecting more people than ever before to the Internet - but that has not stopped its losses rising.

The UK's biggest-ever listed Internet company said losses before one-off items rose to £5.23m from £810,000 in the 16 weeks to 21 August.

This was the first set of results since parent company Dixons decided to sell part of its stake in Freeserve in July, valuing the company at £1.5bn.

The BBC's Rory Cellan-Jones:"The losses are mounting"
It has grown at a rapid rate since launch just over a year ago as the first mass market Internet Service Provider (ISP) in the UK to connect users to the Internet with no monthly subscription charge.

From a standing start it has grown to have 1.5 million subscribers - with the total rate increasing by 19% in the 16 weeks to 21 August.

Freeserve said it was now increasing its user numbers at a rate of 14,000 per week.

Revenues beat expectations

John Pluthero: Not much change in market
The results will be of particular interest to the many Freeserve customers who scrambled to buy shares at the launch price of 150p. After an initial surge in the price it has fallen below the offer value.

In early trading following the results on Tuesday it fell 10p to 140p, before closing at 137.5p.

One of the reasons for the volatile share prices has been that there is comparatively little science to guide the valuation of Internet related companies.

Although operating losses rose, revenues also came in at £3.4m, ahead of forecasts from sector watchers such as Merrill Lynch and double the £1.7m last quarter.

For first time, revenues from advertising and e-commerce exceeded the money earned from telephone call charges.

Kate Noble: US companies merging and consolidating
With little historical record or current competitors to compare the data with, analysts have been focusing on the number of subscribers, still growing, and the churn rate - or the rate at which users leave the service.

The four-week churn - the number of accounts which have become inactive - also provided better than expected figures, with a fall to 9.5% in the first quarter from 11.9% in the previous 12 weeks.

The total amount of time spent online by its subscribers rose to 2.2 billion minutes, up from 1.5 billion in the previous three months.

Flotation fees

Freeserve, which swiftly leapfrogged former market leader AOL, in numbers of subscribers, has to overcome scepticism regarding its ability to hold on to its subscribers, with more than 100 rival subscription-free ISPs in the UK.

It has been seeking to distinguish itself by increasing its content and services, with a string of offerings including, finance, job-hunting, online foreign exchange and insurance. It has also set up a joint venture to establish online share trading.

Freeserve's Chief Executive John Pluthero: "People understand that the market is in an investment phase"
Chief executive John Plutheroe said that from November it would be trialling high speed Internet access via BT's ADSL platform, which allows users to send and receive data over phone lines at speeds up to 20 times faster than normal.

Total pre-tax loss was £8.6m including the £3.6m of one-off items, made up of flotation fees, expenses and marketing costs in connection with the float.

In addition to selling adverts on site the company makes its money from its cut of the money customers pay for phone use and the commission charged on any goods and services bought over the Net by its subscribers.

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