Kate Bulkley, Media Analyst.

Are you being Freeserved?

By Kate Bulkley

The Guardian

Monday September 30, 2002

It is four years old this month and has a new man in the hot seat, but can Freeserve hold on to its position as the ISP that most Britons dial up to? Kate Bulkley investigates

In September 1998, using a staff of just three people and a high-street-linked revenue model that achieved unprecedented levels of take-up, Freeserve changed the rules of how the UK public logged on to the internet. Its success in reaching 250,000 users in the first six weeks of its life was significant enough to revolutionise mass-market net access in the UK, rock BT and eventually take the new internet service provider (ISP) into the FTSE 100. "Those were great days," says Freeserve co-founder Ajaz Ahmed.

But now, as the company celebrates its fourth anniversary with a staff of more than 300 and a long line of potential problems on the horizon, those good old days seem very far away.

The problems are lined up on the desk of new CEO Eric Abensur, a Frenchman who came from France Telecom (FT) to be Freeserve's CFO 18 months ago. Abensur (who declined to be interviewed for this article) is said to have been well received by staff as the successor to the aggressive John Pluthero, who left unexpectedly this summer to run a big Freeserve supplier, alternative telecommunications company Energis. The elevation of the Frenchman came as no surprise because Freeserve was sold to the online unit of France Telecom - called Wanadoo - for 1.65bn in December 2000.

Pluthero may have been the ideal man to talk up Freeserve's path to the FTSE 100, but Abensur's reputation is as a more "considered and thoughtful" professional, less likely to say things in public that rock the corporate boat.

"Abensur is not a classic kind of bean counter. He has some operational experience and he's a popular choice here," says one Freeserve insider who has worked with him.

Abensur will need plenty of operational savvy to recreate some of the instant success that was Freeserve in its early days. Much of that success is now under threat from several quarters. First, its privileged relationship with its original owner Dixons will not last forever. Being able to distribute software from a high-street chain that is the largest retailer of PCs in the UK has been a unique advantage. However, now Freeserve is owned by the French, renegotiations with Dixons will eventually have to take place and any new deal will cost money. And it's not only distribution at Dixons that will be on the negotiating table - the free instore signage, cross-promotional advertising campaigns and e-commerce deals will all be affected.

Freeserve is still Britain's biggest ISP as measured by audience reach, according to Nielsen NetRatings, but the market is changing and the competition is growing louder. The success of Freeserve's original dial-up, pay-as-you-go business, which still commands the lion's share of its online users, is being challenged by the new, faster broadband offerings that, for a set monthly fee, give users an always-on, high-speed connection. Freeserve, like AOL and other ISPs, is launching a broadband package, but BT holds the broadband high ground because it serves as the gatekeeper and has only recently lowered the wholesale prices available to its rivals.

"We are in a transition period and a quite likely scenario is that BT's broadband expansion will eat into Freeserve's customer base," says Tom Ewing, internet analyst at Nielsen NetRatings. "Freeserve has a kind of mass-market reach, so the key question is, can BT change the profile of broadband from being a luxury service into a mass-market one?"

BT lost the narrowband wars with Freeserve, but is determined to get its retaliation in first when it comes to broadband, already spearheading a doubling in high-speed access in the UK in the past year from 5% to more than 10%. BT is even attempting to replicate Freeserve's relationship with Dixons by linking up with Carphone Warehouse to showcase its broadband package.

In addition, BT has launched a 10m advertising campaign in a bid to double the number of people taking up broadband to 24,000 a week and so hit its target of a million broadband subscribers by next summer. The good news for Freeserve and all of BT's other rivals, such as AOL and Tiscali, is that the campaign will help raise awareness of broadband in general, but the rivals claim that the tone of the ads over-emphasises BT's position in the market.

"The ad campaign directs people to BT.com, but we think it should be BT.com/broadband," says Jonathan Lambeth, spokesman for AOL UK. "This sounds like a small issue, but it's important to us."

But if the ad campaign itself was not controversial enough among BT's rivals, then marketing a new "No Frills" broadband connection service using the telecom giant's residential phone bill mailings that reach 20m households adds insult to injury. Freeserve has already complained about BT's cross-marketing activities in the past, but has been turned down by the telecommunications regulator Oftel. Freeserve is now considering a formal complaint about BT's so-called "blue bill" marketing.

It is true that broadband remains an expensive option for most customers, costing about 30 per month, and certainly the dial-up market is far from moribund. In fact, Freeserve's dominant position in the cheaper narrowband world is expected to continue for at least a few more years, thereby buying the company some time to consider its future.

For Abensur, that future is almost certainly going to include a re-branding exercise that will turn Freeserve into Wanadoo, the name of its owner. For some experts, this move could be the most dangerous of all to Freeserve, which is one of the few brands to have established itself successfully in the new media upsurge of the past five years.

"BT's 'No Frills' service has changed everything for everybody," says one analyst. "Freeserve is a big company, so it has the whole inertia factor in its favour. But I wouldn't want to have to rebuild my brand equity at the same time that BT has woken up."

Whenever this re-branding move happens, Abensur also has to decide if the company - whatever its name - will continue as a low-cost, mass-market provider supported by advertising revenue and phone fees, or whether it will aim to be a premium broadband provider with exclusive content and more upmarket customers.

All this and the UK-based Freeserve has to absorb the new culture of its French ownership which believes Abensur is the man to navigate the broadband minefield. But there is still a chance, as one waggish analyst joked, that despite its premier position, the next few months "could land Freeserve in the Wanadoo-doo."

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