British Internet service provider Freeserve in talks with French suitor

LONDON (AP) _ Freeserve PLC, a pioneer in low cost Internet access in the United Kingdom, is negotiating a possible combination with France Telecom subsidiary Wanadoo SA. <br><br>The proposed deal would

Wednesday, November 22nd 2000, 12:00 am

By: News On 6

LONDON (AP) _ Freeserve PLC, a pioneer in low cost Internet access in the United Kingdom, is negotiating a possible combination with France Telecom subsidiary Wanadoo SA.

The proposed deal would widen France Telecom's growing presence in the international telecommunications market and bolster the beleaguered Freeserve, which is Britain's most popular Internet service provider despite mounting losses.

In a statement released Wednesday to the London Stock Exchange, Freeserve said that it was in talks ``which may or may not lead to an offer being made for the company in shares.''

A France Telecom spokesman in Paris confirmed the company was talking with Freeserve and other Internet service providers, but declined to give other details.

Neither company would reveal terms, though British press reports speculated that the deal would be valued at about $2.6 billion.

A consolidation of Freeserve and Wanadoo ``would be good for both parties,'' said Adele Thackray, an analyst with Commerzbank in London. ``It gets Wanadoo into the United Kingdom as the market leader with 2 million customers,'' she said.

Wanadoo itself has about 2 million customers, mostly in France but also in adjacent European countries.

``It would be a good move for Freeserve, because it lacks a telecommunications partner,'' she said. ``Freeserve lacks the scale to get bigger. It's a game for big boys, with multiple platforms.''

France Telecom also owns the mobile service provider Orange, as well as assets in Spain, Belgium and Denmark. The French company also owns a large share of NTL, a telecommunications and cable company with 8.2 million customers in the United Kingdom, Ireland, Germany, France, Sweden, the Netherlands and Switzerland.

The Financial Times reported that Freeserve also was talking to Energis PLC, the British telecommunications group.

The fate of Freeserve, which is 80 percent owned by the electronics retailer Dixons, had been uncertain since the collapse last June of a merger with its German rival T-Online, controlled by Deutsche Telekom.

Freeserve, which does not have a partnership with a telecommunications company, has been subsidizing the phone bills of its 250,000 flat rate customers. It lost 17.8 million pounds ($25.8 million) in the first quarter of the year, reflecting in part a heavy advertising campaign.

In a separate development, Freeserve announced a deal with Rochester, N.Y.-based Eastman Kodak Co. for a joint Web site to allow users to create, share and store digital pictures online. Under the deal, users can submit film to Dixons' stores, and receive an Internet address containing their images.

Shares of Freeserve were down 3 pence to 143 pence ($2.07) in late trading in heavy volume on the London Stock Exchange, though well off its high in March of 920.75 pence. In Paris, Wanadoo was down 0.8 euros to 12.5 euros ($10.63) and France Telecom was down 3.9 euros to 101.1 euros ($85.94)