Freeserve wannabe Wanadoo: What the deal means

Wanadoo's acquisition of Freeserve marks France Telecom's dominant position in the international ISP market, according to French analysts and industry observers. Both welcomed the move, claiming it provides the French internet company with a much needed presence in the UK.

Wanadoo announced yesterday morning that it had bought Freeserve at 157p a share, in a deal worth E2.57bn (£1.6bn). In return, Freeserve agreed to take 0.225 new shares in Wanadoo for each of its own shares, making parent company Dixons, Wanadoo's second largest shareholder - with a 12.7 per cent stake in the French company.

Hellen Omwando, internet analyst at Forrester Research, predicted the deal will make Wanadoo a winner in the internet portal war.

"I'm not surprised by this. It is a very good move for Wanadoo as it needs a presence in the UK to become a strong pan-European player. Wanadoo needs a presence in the five key European markets and this deal clinches them in that position," he said.

Bertrand Schmidt, CEO at French start-up Arcadia, agreed, claiming it marks another stage in France Telecom's march into the UK which began a few months ago with the purchase of mobile phone company Orange.

"France Telecom bought Orange a few months ago as part of a world strategy - it is an international as well as European one."

The deal provides Wanadoo with an easy entrance into the UK, agreed Nick Jones, senior analyst at Jupiter Research.

"The portal market by its very nature is very active and difficult to enter. There has been a choice of seven or eight portals over the last two years but it is now compartmentalising and it would be difficult to launch another. This has the potential to greatly bolster its [FT's] presence in the UK."

But Schmidt questioned the affect the sale would have on Wanadoo users.

"It will be interesting to see how the two cultures will merge. It is a bit odd because Freeserve is free but Wanadoo charges. They are totally different cultures and it is not clear if Freeserve's free internet provider culture will rub off on Wanadoo or if it will be the other way around."

However, Forrester's Omwando claimed Wanadoo must not be complacent with its newfound dominant position.

"Wanadoo now needs to move beyond what it thinks is the main revenue stream of advertising, and focus on ecommerce sales - be it an enlargement of auction platforms or its directory service, alapage. It needs to diversify away from advertising."

With the overall number of large ISPs falling and independent players increasingly disappearing or being bought by telcos, it would appear analysts' expectations are finally being born out.