Freeserve unmetered move

The UK's largest internet service provider (ISP), Freeserve, is launching an unmetered package.

It said customers who access the internet through British Telecom's lines will be offered unmetered access at off-peak times for £6.99 per month from May.

Freeserve was the first mass market ISP in the UK to offer subscription-free internet access, with users having to pay for telephone calls.

But its rivals have recently responded by offering a range of unlimited internet use deals, with no call charges in return for a fixed monthly fee.

As a separate offer, Freeserve, in partnership with Energis, will offer its customers an extension of its existing 'Freeserve Time' offer.

This offers unmetered access at all times provided a minimum of £10 is spent on voice calls each month.

Freeserve said the new offer is applicable to the 85% of Freeserve users who use BT phone lines. But only 10,000 customers per month will be allowed to take up the new service.

John Pluthero, chief executive of Freeserve, said:

"Freeserve built its reputation with customers on low-cost Internet access combined with high quality service. We will continue to set the standard for both."

But analysts were more sceptical. "On balance, Freeserve's new tariff should be seen as competitive, but less than a knock-out punch," said Miles Saltiel of WestLB Panmure.

Under threat

Freeserve's shares have taken a dive as the company - with 1.7m customers - faced the onslaught of rivals who were prepared to offer cheaper, or free, access to the net.

Its shares have fallen by more than one-third since their high this year of over 900p. But the company is still valued at £5.8bn, more than its parent Dixons, the high street retailer, and more than any other UK internet company.

Freeserve is also planning to roll out other new services for its customers. They include high speed internet access, which the company is currently operating on a trial basis in Manchester and London, and mobile internet services based on WAP (wireless application protocol) phones such as the Nokia 7110.

New model

Freeserve's model, in which the company derives revenue from a portion of the telephone charges paid to its telecoms provider, Energis, is now clearly under threat.

Oftel, the telecoms regulator, wants to change the way telecoms companies charge for the internet to reflect the fact that once a connection is made, the cost per minute is much lower.

That would lower the revenue Freeserve receives from its telephone charges, even if customers did not desert it for other free providers.

But partly as a result of Oftel's pressure, BT is making available unmetered, fixed rate access to other ISPs.

It is that development that has allowed Freeserve to bring forward its new plan.

The company, which reveals its third quarter results on Thursday, has never made a profit. But it has argued that the size of its customer base will allow it to gain significant revenues from advertising and e-commerce, and is becoming less dependent on telephone charges.

To use Freeserve Time users must be BT phone customers and buy an inexpensive 'router' box, or dial the Energis access code, when making national and international calls.