Freeserve Broadband

Freeserve was the service that put the UK online. Launched on 22 September 1998 by Dixons, the high street electronics retailer, it did one thing differently from every other internet provider of the time: it charged nothing. No monthly subscription, no joining fee. Customers picked up a CD-ROM from a Dixons, Currys or PC World store, installed it, and they were on the internet. They paid only BT's standard local call rate while connected. Within eleven weeks the service had 500,000 accounts. Within six months it had over a million. Freeserve did not survive as an independent business for long; it was sold to France Telecom's Wanadoo in 2000 and renamed Wanadoo UK in 2004. But its short existence changed the shape of the UK's internet market permanently, and the customer base it built eventually passed through three further rebrands before ending up, decades later, inside BT Group.

How the idea came about

The concept originated with Ajaz Ahmed, a store manager at PC World in Leeds. He had observed that getting online in the UK required both technical knowledge and a willingness to pay a monthly fee to a provider; most ordinary PC buyers did neither. Ahmed brought the idea of a free, accessible internet service to Dixons, where John Pluthero and the corporate development team took it forward. The original concept was called Channel 6 and was to be a joint venture between Packard Bell and a Leeds-based internet company, Planet Online. When Packard Bell withdrew, Dixons stepped in as the retail partner.

Planet Online, an Energis subsidiary that already operated internet infrastructure, handled the technical side. Dixons contributed its retail network: thousands of stores that could hand out the CD-ROMs needed to install the service. The business model was simple. Every minute a Freeserve customer spent online generated a small payment from BT under an arrangement called Number Translation Services (the billing framework that required BT to share call revenue with other networks). Dixons and Planet Online divided this income. There was no cost to the customer beyond the phone bill, and no marketing spend beyond the CD-ROM distribution. With almost no payroll and zero advertising costs, Freeserve reached profitability through sheer volume of usage.

The press conference announcing the service took place at the Financial Times building in London on 22 September 1998. Response was immediate. Dixons stores had to manage demand they had not anticipated; modems were reportedly flown in and connected to servers directly from airports to keep pace. Within two months Freeserve was the most dialled telephone number in the UK.

What Freeserve offered

In its original form, Freeserve was a dial-up (internet access using the standard telephone line and a modem to connect, disconnecting when not in use) service. There was no standalone broadband product at launch. The service gave each customer a freeserve.co.uk email address, 10 megabytes of personal web space, and access to a homepage portal that generated advertising revenue for the company. The email address structure was unusual: a user named Dave Smith would get dave@dsmith.freeserve.co.uk, a long format that became well known and that many customers kept for years after Freeserve ceased to exist as a brand.

The service was free in the sense that there was no Freeserve charge, but customers were not without costs. Calls to the helpline cost £1 a minute at launch, later reduced. BT's call charges applied for every minute online, which meant heavy users faced significant phone bills. This was not unique to Freeserve; it was the standard model for dial-up internet in the UK at the time. What Freeserve did was remove the additional ISP (internet service provider) fee that competitors such as AOL and CompuServe charged on top.

Freeserve began trialling ADSL (Asymmetric Digital Subscriber Line; the technology that delivers broadband over existing copper telephone cables, allowing a much faster always-on connection than dial-up) in early 2000. The initial hardware was a rack-mounted modem and a separate router, a cumbersome setup that was later simplified to a small USB modem, the Thomson SpeedTouch 330. Early ADSL pricing reflected the costs of the time: around £39.99 a month plus a £150 installation fee, with an engineer visit to the premises required before the service could be activated. A pilot covering approximately 35 per cent of the UK population in major cities launched in September 2000, with a broader national rollout planned for 2001. Freeserve also packaged extra content with the broadband tier, including ITN Radio news, MP3 downloads and online gaming, positioning the higher-speed service as a gateway to media that dial-up could not practically deliver.

By the time the broadband service was reaching its stride, Freeserve had already been acquired by Wanadoo and was operating as a subsidiary of France Telecom. The broadband product continued to develop under that ownership, but the Freeserve brand was wound down in April 2004 when the service was renamed Wanadoo UK.

The stock market float and the dot-com years

In July 1999, with 1.3 million subscribers and the dot-com boom at its peak, Freeserve floated on the London Stock Exchange and NASDAQ as Freeserve.com plc. It was the first UK internet company to do so. The float valued the business at between £1.31 billion and £1.51 billion. The shares were picked up eagerly by investors caught up in the technology share frenzy of the time. At one point the valuation approached £10 billion before drifting back. Dixons, which had originally invested around £240,000 to get the service off the ground, realised a substantial return.

By September 2000 Freeserve had more than two million active subscribers, a figure greater than BT's own internet service and, at the time, unique for a European ISP not operated by a national telephone company. The business was also under pressure. The free ISP market had become crowded, with dozens of competitors offering similar no-subscription services. Freeserve was forced to spend money maintaining its portal and subsidising a flat-rate unlimited access option that compressed its margins. Dixons, by then looking to exit the internet business entirely, spent most of 2000 searching for a buyer.

The Wanadoo acquisition

The buyer that eventually emerged was Wanadoo, the internet division of France Telecom. The deal was announced on 6 December 2000 and was structured as an all-share transaction valuing each Freeserve share at 157 pence, an 11 per cent premium over the previous day's closing price. The total consideration was approximately £1.65 billion. Dixons, which held around 80 per cent of Freeserve at the time of sale, received a 13 per cent stake in Wanadoo in return. France Telecom pledged to preserve the Freeserve brand in the UK, a promise it kept for nearly four years.

Freeserve's share price had fallen sharply from its dot-com peak; the 157 pence offer was a fraction of the 600 pence per share that had been under discussion when negotiations with Germany's T-Online were taking place earlier in the year. For Dixons, however, the deal represented an exit after nine months of searching. The markets reacted coolly: Dixons shares fell on the day of the announcement. Freeserve's chief executive acknowledged that 157 pence was the best available deal for shareholders under the circumstances.

Regulatory battles with BT

Through 2001 and 2002, Freeserve became a persistent complainant to Oftel (the telecoms regulator, which later became Ofcom) about BT's conduct in the broadband market. The core allegation was that BT was using its control over the wholesale ADSL network to favour its own retail internet arm, BT Openworld, at the expense of competing ISPs. Freeserve accused BT of giving BT Openworld advance notice of a 40 per cent reduction in wholesale broadband access prices, allowing BT's retail division to build marketing campaigns and discounts before rivals had time to react.

Oftel initially rejected Freeserve's complaints in May 2002, finding insufficient evidence of anti-competitive behaviour. Freeserve appealed to the Competition Commission Appeal Tribunal, which in April 2003 ruled that Oftel had not given adequate reasons for dismissing the predatory pricing element of the complaint and ordered a re-examination. Oftel carried out that re-examination and, in November 2003, again found no evidence of a margin squeeze (the practice of charging wholesale customers so much for network access that they cannot profitably compete with the network owner's own retail prices). BT described Freeserve's claims as spurious. For its part, Freeserve kept open the possibility of a further appeal. By that point, however, Freeserve as a brand had less than six months left; the Wanadoo rename came in April 2004 and the regulatory case was ultimately withdrawn years later.

What happened to Freeserve's customers

When the Freeserve name was retired on 28 April 2004, its customers became Wanadoo UK customers. When Wanadoo itself was replaced by the Orange brand on 1 June 2006, they became Orange Broadband customers. When Orange merged with T-Mobile UK in 2010 to form Everything Everywhere, and when that service was rebranded as EE Broadband in October 2012, the same customer base moved again. BT acquired EE for £12.5 billion in January 2016, completing the chain.

For many customers, these transitions passed entirely unnoticed. A household that had signed up to Freeserve in 1999 and never actively switched provider would have been renamed four times without doing anything. What persisted, for years after the Freeserve name vanished, were the email addresses. Orange maintained the freeserve.co.uk addresses and the fsmail.net webmail service (in which 'fs' stood for Freeserve) well into the following decade. Orange began a process in 2007 to purge dormant Freeserve accounts, eventually ceasing the account deactivation process in February 2012. The personal webspace service that had been a feature of the original Freeserve offer was finally switched off in 2016, ending the last visible remnant of the original service.

Freeserve's place in the record

Freeserve's lasting significance is as a case study in how a distribution advantage, Dixons' retail network, combined with a simple business model, sharing telephone call revenue with BT, could build a mass-market internet audience faster than any competitor. The service was not technically sophisticated. It did not own its network, it outsourced its infrastructure to Planet Online, and it had almost no staff in its early period. What it had was a frictionless entry point for customers who would not otherwise have gone online. The two million subscribers it had built by September 2000 represented a substantial share of the UK internet market at a time when broadband did not yet exist for most consumers. Its sale to Wanadoo for £1.65 billion, a fraction of its peak dot-com valuation but still a remarkable return on Dixons' original £240,000 investment, marked the end of its short independent life. The name is now historical. The customers it brought online are still there, most of them long since moved on to providers and services that Freeserve's founders could not have anticipated.