Freeserve severs ties with Dixons

Freeserve, the UK's largest ISP, has confirmed weeks of speculation stating it will not renew a long-standing distribution agreement with electrical retailer Dixons Group.

The move ends five years of history between the two companies, and could have a substantial impact upon Freeserve's ability to acquire new customers.

Freeserve said the agreement, under which Dixons promotes Freeserve's dial-up internet service to customers in its chains such as PC World, had become a hindrance to the ISP's plans to be profitable by next year, because it restricts the ISP from signing up with some other retail partners.

Freeserve chief executive Eric Abensur said in a statement: "We will continue to maximise this time with Dixons, but at the same time we will further build on new opportunities for customer acquisition through alternative means. With the agreements coming to an end, we will lose all the restrictions placed on us as to which other retailers and partners we can strike deals with."

The dial-up deal will expire in February 2004. A separate deal covering broadband will continue through to mid-February 2005, and is not covered by Freeserve's decision.

Freeserve, now a subsidiary of France's Wanadoo, said that its other distribution channels, including offline and online, topped the number of subscribers generated by the Dixons deal in the first quarter of 2003. Other retail partners include Orange, Littlewoods, Texaco, MVC and the Lloyds pharmacy chain.

Dixons helped create Freeserve during the dot-com boom, and the ISP quickly became the UK's largest dial-up provider due to its pioneering subscription-free business model. The service was sold to French service provider Wanadoo in 2001, with Dixons retaining a stake in the company.

The Dixons Group, which runs around 1,400 shops around Europe and includes retail chains Dixons, Currys and PC World, has been in talks with BT and AOL for at least six months on replacing Freeserve in its shops. But according to sources, BT has been ruled out of the equation, leaving AOL as an obvious replacement for Freeserve.

Research company Forrester said that with 2.4 million subscribers, Freeserve is still the biggest dial-up ISP in the UK, but because it has been slow to provide extras such as instant messaging, AOL is fast catching up.

Rebecca Jennings, a senior analyst at Forrester, said: "The Dixons partnership has been instrumental to Freeserve's growth and is the reason it is number one." But she wasn't convinced that the deal will hurt Freeserve as much as it would have a few years ago, when internet penetration was still growing at a tremendous rate.

Freeserve on Monday announced a broadband promotion under which new customers will receive a free modem and connection as well as a one-month no-risk trial.

Matt Broersma writes for ZDNet UK