Freeserve
It
is not yet five years old, but Britain’s
leading internet company is having growing pains.
Freeserve is still the largest internet service
provider in Britain with 2.7m customers —
about half a million more than BT and AOL. But
while its rivals are spending fortunes promoting
their high-speed broadband services, the internet
pioneer concentrates most of its advertising on
the slow-growing “narrowband” market.
This is not the only conundrum facing Eric
Abensur, the Frenchman who took over as chief
executive from John Pluthero last year. The
company’s name has become a misnomer because
its main products are no longer free: its Anytime
package costs £14.99 a month for all-you-can-eat
narrowband access, and broadband costs £27.99 a
month.
Also under review is Freeserve’s
relationship with Dixons, the retailer that gave
birth to the business, and the platform for its
initial explosive growth. Dixons, which hands out
software CDs through its stores, wants to see if
it can get more commission from one of
Freeserve’s rivals. At the bottom of all
this is the fact that Freeserve, a former FTSE
100 company that was briefly valued at £8
billion, is still making big losses. Even on a
flattering underlying basis, Freeserve lost
€92m (£65m) last year. It was the only part
of Wanadoo, the France Telecom-controlled company
that acquired it two years ago, to suffer an
increased deficit.
Abensur’s need to cut losses helps to
explain Freeserve’s cautious approach to
attracting high-spending broadband customers. In
his first interview since taking over, he says,
“Of course broadband is the future of the
internet. But broadband is still a loss-making
product. Pay-as-you-go and Anytime generate high
margins and help to improve my economics.”
Abensur has made a commitment to cut losses by
half this year and to break even next year.
Dressed in a chic black suit, he shrugs aside the
suggestion that Freeserve risks being left behind
by BT and AOL.
“It’s an early stage in
broadband,” he says. “(The UK has) 15%
penetration among internet users, compared with
25% to 30% elsewhere in Europe.” Abensur,
39, joined Freeserve as chief financial officer
after the Wanadoo takeover. He had worked in
France Telecom’s pay-TV business, having
spent nine years with Ernst & Young in Paris
and Los Angeles. This is his second spell in
Britain: he spent his military service with a
Rhone-Poulenc subsidiary in Uxbridge. While
watching the pennies, Freeserve is trying to
persuade its customers to switch to broadband
with an offer of a free modem — normally it
costs £49.99. “We have been trying to be
more efficient in terms of marketing,” says
Abensur.
Freeserve is also cutting costs by managing its
network suppliers more efficiently, working hard
to forecast its need for capacity more
accurately. The result: network utilisation has
risen from 55%-60% to 98%. Notably, it has
extracted better terms from Energis, the telecoms
firm now run by Pluthero. The company is being
helped by a rebound in the online advertising
market. Abensur says “portal revenues”
are 40%-50% ahead of budget. “It’s not
as massive as we dreamt three or four years ago.
But online advertising is getting more
powerful.”
Abensur says cost had little to do with the
group’s decision to shelve plans to rebrand
Freeserve as Wanadoo — at least for the
moment. Nevertheless, rebranding remains on the
agenda. Freeserve will soon change its logo to
point out that it is “a Wanadoo
company”. Abensur says this is “not for
the moment” a precursor to a full
rebranding. But he adds, “I want to make it
clear that we are part of this wider family, that
we have sister companies in other countries, that
we are a leading group in broadband. We need to
be taken seriously.”
Dixons is still the main source of customers
— it provides 47% of new sign-ups — but
Freeserve is less reliant than it once was.
Besides online sign-ups, it distributes its CDs
through Littlewoods, the department-store group,
and through the shops run by Orange. For all the
challenges, Abensur says he “loves”
working in Britain. “We are still the No1
— which gives me strength when I wake up
every morning.” It now has 2.7m customers
and last year generated £170m of revenue —
but still lost 92m euros (£65m).
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