It should have come as little surprise that Freeserve would launch unmetered internet access yesterday (although some in the market at least were caught napping as the share price rebounded more than 8%). It was evident simply from the column inches that cable company NTL and US group AltaVista had achieved last week that the rest of the market would be forced to follow suit soon.
Competitive advantages are won and lost quickly in cyberspace - a fact Freeserve knows only too well.
It was also inevitable that unmetered access which is common in the US would make its way to these shores before long, although Freeserve may have preferred to keep it at bay a little longer.
Revenues in the last quarter were just £3.6m, of which some £2m came from Freeserve's share of phone calls - a figure which will be decimated by yesterday's offer. Far from making cash from its deal through British Telecom lines, Freeserve will effectively be subsidising the erstwhile monopoly from here on in.
Ironically in the US - the stick used to beat UK operators - unmetered access on local calls was not arrived at by market forces but as a result of social engineering by government. The pressure in the US is not for removing further barriers but rather for telecoms companies to introduce some kind of charging.
Freeserve's offer document published prior to its flotation last summer had admitted that call revenues would fall but hoped that income would be offset by the increasing amount of time people spent online. The spin meisters for Freeserve yesterday were keen to disabuse anyone who would listen that the company is an internet service provider at all.
Freeserve rather is chiefly a portal business, they intoned, which will make its revenues from e-commerce and advertising which the company claims is growing at 40% a quarter. In fairness, Freeserve had always said this side of the business would overtake call revenues but would no doubt feel more comfortable if e-commerce and advertising were already the greater share.
Unmetered access will clearly result in consumers spending more time online which should be good news for Freeserve but its portal business needs to get itself in better shape.
According to investment bank Salomon Smith Barney, Freeserve users spend an average of 15 minutes online at a time, of which only three minutes is spent at the portal. The bank compares that with America Online, the world's largest ISP, where users in the US spend an hour online of which 85% is at the AOL portal. The market can only become fiercer still and the importance of quality content will be all the more important. If Freeserve really can shrug off the drop in call revenues it needs to be doing deals with top rank providers quickly.
Go for it
There will have been a lot of back-slapping at the Canary Wharf offices of Morgan Stanley yesterday after the largely successful transfer of that ticking parcel otherwise known as Lastminute.com from private hands to the public arena. This investment bank has a reputation for getting internet flotations right in the US, but has been slow at exporting this expertise into Europe.
Whether through luck or good judgement, the end of day premium of 25% was just about "perfect" from a financial advisers point of view. Actual trading in the stock was orderly. Oh, and the flotation of Lastminute.com did not prove to be the needle which popped the supposed market bubble in internet stocks. The new economy has not been abolished.
Last week, the advice here was to avoid applying for shares in the flotation, and that proved to be a sensible course of action since the 200,000 speculators who did so received such small allocations they will be lucky to wash their faces if they sell now. Also last week, it looked as if it would be some time before a considered view could be taken on whether Lastminute.com presents good value. But already, given the orderly first day's trading, this company is looking like a short-term speculation which might sit rather better in a portfolio as a long-term investment.
Only one of the 32 major internet IPOs handled by Morgan Stanley around the world has fallen below the issue price. And whatever the daft rhetoricals about how ludicrous it is that "value" can be attributed to a company which has only ever lost money (let's start with the BBC ...) , there is an undefinable aura surrounding Lastminute.com that says it just isn't a loser.
Across the London investment scene there are all number of suspect "tech" stocks, peddled by fringe brokers and offering precious little transparency even as to their true ownership, never mind the quality of the business models. This is a market where unwary investors will lose the skin off their backs.
In contrast, the investment world knows everything it could reasonably expect to know about Lastminute.com. If you believe the internet will change the way we all work, play and communicate, be brave and buy the shares.
