Britain's Freeserve Continues Suit Against CompuServe

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LONDON - Freeserve and CompuServe are still in Britain's high court locked in a defamation dispute.


Freeserve launched last September offering free subscriptions. It has collected 1.3 million users, making it No. 1 in the UK, well ahead of AOL-CompuServe.


AOL has 500,000 paying customers, and its CompuServe subsidiary has 400,000. Other leading British ISPs include Demon Internet, 250,000 paying subscribers; BT Internet, 165,000; MSN, 160,000; and Virgin Net, 145,000.


The suit stems from complaints in January from Dixons Group, Freeserve's parent company, that CompuServe's customer service support staff were telling members switching to Freeserve that the new service would eventually charge for its services.


"Freeserve asked for an undertaking that CompuServe would not repeat these untrue and defamatory statements," Justine Moon, spokesman of Freeserve parent Dixons Group, said in a statement. "Although an undertaking was eventually received from CompuServe's lawyers, their proposals for corrective action were not entirely satisfactory."


"CompuServe did not receive any corroborated evidence to support the complaint," said Maggie Gallant, head of corporate communications for AOL-Compuserve in London.


But the larger issue is Freeserve's reputation at a time when Dixons, Britain's largest chain of electronics stores, is exploring an initial public offering for its ISP.


Freeserve's success is mainly attributed to being the first to offer free access to the Internet. There are now 40 ISPs in Britain following Freeserve's lead.


Freeserve earns its keep by charging advertisers fees based on the number of hits to its sticky portal site, freeserve.net, the length of the visitor's stay and the amount of shopping done on such visits. It also charges for customer support.


First-year revenues are projected at $14.4 million.


Emboldened by the rapid growth of Freeserve, Dixons has appointed investment bank Credit Suisse First Boston and stockbroker Cazenove & Co. for the possible public offering.


According to US investment bank Morgan Stanley Dean, Freeserve by 2004 will account for 5 million users in Britain, or 24 percent of that market. Freeserve's revenues by that year are forecast at $190 million.
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