Free ISP finds investors

But the big bucks will come to those supplying broadband and services to SMEs, according to analysts, and that is where Iomart plans to go.

Robin Duke-Woolley, an analyst at Schema, said: "We have said for a long time that people who are trying to work in both markets, consumer and SME, will fail. They have to set up different divisions or sell one. And the most profitable sector is going to be selling to SMEs: ADSL, added value and with voice potential."

David Harrison, Iomart financial director, said: "We want to move into offering more complex services. The private group buying Madasafish will get a revenue stream of £2m a year and a viable business. There may be mutual business opportunities in the future."

For a transitional period, Iomart will provide the network for Madasafish while the new owners find a telecoms provider.

In the meantime, Iomart will concentrate on reselling BT ADSL, bundled with their ThinkMail email and messaging software and the web-hosting service supplied by MSL, the subsidiary bought last year. The Scottish-based company has a nationwide presence but has had most of its success in ADSL services in London.

On Friday, Iomart revealed annual results showing revenues of £3.6m and losses of £5.1m on revenue increased eleven-fold to £3.44m. It has cash reserves of £12m.