LONDON -- These days, investors greet news of any new revenue stream for the U.K.'s largest Internet service provider

Freeserve

(FREE)

with unrestrained glee. Thursday and Friday's combined 82% gain on news of a mobile-commerce venture with

British Telecom's

(BTY)

mobile-phone division

Cellnet

is case in point.

Freeserve's shares closed Friday at 524.5 pence ($8.40), their highest level since the ISP floated in July, following an announcement on Thursday that it has formed a joint venture with Cellnet to offer Internet services such as email, and sports and financial news in tandem with Cellnet's mobile phone Internet unit,

Genie Internet

.

One of the first services that will be offered to customers is email notifications and Internet access to SMS text messages. Fuller Internet access allowing services, such as share trading, will be available when more advanced technologies such as Wireless Application Protocol are available.

If Freeserve gets its mobile strategy right, "they will be at the start of the boom in mobile data and m-commerce," says Chris Bell, manager of

Framlington's

global

NetNet

fund. Bell is long Freeserve.

This announcement comes at a good time for Freeserve. Although its shares are now well over triple the IPO price of 150 pence, the company suffered particularly badly during the summer as worries over the efficacy of its business model pushed the shares down to 135 pence.

Freeserve is a subscription-free ISP. It doesn't charge its customers a subscription, but instead makes money from a cut in the metered phone charge users must pay to access the Internet, as well as advertising and e-commerce. Unfortunately, under pressure from the government, the

Office of Telecommunications

, and other ISPs offering cheaper packages to the Internet, the days of making money from metered calls to the Internet are widely regarded as numbered.

During the first fiscal quarter ended Aug. 31, Freeserve did indeed generate more revenue from advertising and e-commerce than connectivity, the split being 53-47, compared with 41-59 in the previous quarter. However, revenue during the period grew only 26%, prompting worries that the money from advertising and e-commerce would not be sufficient to justify the 2002 revenue multiple of over 50 times at which the shares are now trading.

The outlook for advertising revenue especially is uncertain. According to

Fletcher Research

, the top-10 online advertisers in the U.K. spent a less-than-startling 593,000 pounds in September. Furthermore, this figure has actually fallen steadily in the months since June.

All the more reason, then, to work on making money from e-commerce and m-commerce. Unfortunately, predictions about the amount of revenue from m-commerce are at best no better than virtual shots in the dark.

According to

Dataquest

, a technology consultancy, the number of mobile subscribers in Western Europe will increase from almost 90 million at the end of 1998 to more than 237 million by the end of 2003, representing an average penetration of about 64% across the continent.

Durlacher

, an investment and research firm that is very bullish on the prospects for m-commerce, estimates this mobile penetration will allow the European market for m-commerce to increase from about 323 million euros in 1998 to 23.6 billion euros by 2003. The m-commerce market will, therefore, have a compound annual growth rate of 236% until 2003.

Stirring stuff, indeed. But Falk Muller-Veerse, an analyst at Durlacher, concedes that the hype surrounding m-commerce is likely to lead to disappointment over the next three years, until perhaps 2004, when the mobile technology becomes available to make m-commerce a reality.

It is also notable that Freeserve and Cellnet are themselves still unsure about many of the details of the venture. Not only has no money changed hands, the two companies haven't even yet decided on the revenue-sharing model for the venture.

In fact, the only thing certain about m-commerce is the optimism surrounding it. As such, those investors who missed out on this surge in Freeserve's shares on the back of this announcement shouldn't fret too much, there are sure to be other pops.

"Oh don't worry, over the next few months we'll get more and more of these types of deals announced," Framlington's Bell says.