name was always a bit of a misnomer considering that users still had to pay inordinate amounts in telephone charges to access the Internet. Yet, following moves by
to offer unmetered access to the Internet, Freeserve bowed to the inevitable and unveiled its package for unmetered access Tuesday.
The shares of the U.K.'s largest Internet service provider have suffered as more and more of its competitors have announced these packages. After peaking at an all-time high of 921p (US$14.52) earlier this year, the shares fell as low as 431 pence. Today's announcement lifted the price 55p, or 9.5%, to 634 pence. As of 2:20 p.m. EST, shares traded in New York were up 6 5/8, or 7.1%, to 100.
Freeserve is offering its customers who log on to the Internet over
phone lines unmetered access at off-peak times for 6.99 pounds per month. Separately, Freeserve said that in partnership with the U.K. telco
, it will offer its customers unmetered access at all times provided they spend a minimum of 10 pounds per month on voice calls.
This package compares with cable company
offer of unlimited access for a 9.99-pound connection fee, a nine-pound line rental per month and a monthly payment of 10 pounds for unlimited access. NTL is also offering unlimited access as long as users spend 10 pounds per month talking on the phone, while AltaVista wants only a signing-on fee of between 30 pounds and 50 pounds.
While Freeserve's move to unmetered access was inevitable, it does not necessarily follow that it will be good for business.
Some analysts, like
Noah Yasskin, say that subsidizing telephone charges will become an expensive marketing strategy for free-access ISPs when one considers that online advertising revenues amount to an estimated $62 million per month and e-commerce has yet to take off in a big way.
Indeed, Yaskin points to the experience of
, which dropped its attempt to introduce unmetered access after a short trial period because the pricing model was simply not financially viable. AOL now offers its users access to the Internet at 1p per minute and a monthly fee of 9.99 pounds.
However, the introduction of unmetered access may in fact be the catalyst for greater advertising and e-commerce revenue. While the arrival of subscription-free access in the U.K. led to a significant increase in the number of online users, it did not lead to any increases in time that these users spent online. And as any Internet company knows, the more time users spend on the Net, the greater the chance of selling them something.
Peter Misek, an analyst at
who has a buy rating on Freeserve, says the company's high visibility will make it one of the largest beneficiaries of any increases in advertising and e-commerce. Chase H&Q has no investment banking relationship with Freeserve.
"Freeserve has the best portal in the U.K. by a long shot and anyone who values Freeserve as an ISP and not a portal doesn't understand the business model. It became an ISP to get the users," Misek says. Indeed, according to
Media Metrix Rankings
, Freeserve was the most visited portal in November and was in second place behind
Even without the cut Freeserve currently gets from the connection charge, Misek argues that its popularity, together with its subsidiary
unified messaging service, online betting and other strategic partnerships, will allow Freeserve to achieve triple-digit revenue growth. He estimates revenue will rise from an estimated 17.6 million pounds in fiscal 2000 to 40.4 pounds in 2001 and 81.7 million pounds in 2002.
However, rising revenues inevitably mean rising losses.
Valentina Barnfather estimates that after making a loss of 1.5 million pounds in fiscal 1999, Freeserve will book a loss of 21.6 million pounds this year, 12.8 million in 2001 and 9.3 million in 2002. Barnfather has a hold rating on Freeserve and Charterhouse has no investment banking relationship with the company.
It remains to be seen whether Freeserve actually will start making the type of money Misek is forecasting to make these losses palatable. However, by offering unmetered access, Freeserve will at least give its customers a chance to help it do so.