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FREESERVE, THE subscription-free Internet service provided by Dixons, has established itself as the UK's second-largest Internet provider. In the two months since its launch, the service, available on CD-Rom or can be signed up for over the Net, has attracted 475,000 users.

AOL, the UK's largest Internet service provider (ISP), has 500,000 paying users. It says the service is not a threat to it as AOL provides the content and community-based features that a bare-bone ISP cannot.

SHARES OF RealNetworks fell by 8 per cent last week the day after Microsoft started to sell its 10 per cent holding. The disposal of 3.3 million shares marked the end of an uneasy partnership between the companies in developing streaming technologies for audio and video broadcasts over the Web.

In 1997, Microsoft paid $30m for shares in the market leader RealNetworks, founded by former Microsoft executive Rob Glaser, and another $30m licensing fee to use their technology. However, issues arose about compatibility between the products from each company, in claims from RealNetworks that Microsoft had "broken" its G2 player software in testimony submitted for the anti-trust trial Microsoft is now facing.

Although the partnership did not work, Microsoft stands to make a profit of around $100m on its shares. "We're proud to be one of Microsoft's most profitable Internet ventures," Jay Wampold, a RealNetworks spokesman, said.

NETSCAPE AND AOL were reported last week to be in talks about a possible partnership that could see the world's largest online service provider use Netscape's browser instead of Microsoft's Internet Explorer as the basis for its services. Since 1996, AOL and Microsoft have had a deal for IE to be used as the default browser, but that agreement ends next month.

Besides a replacement of browsers, another possibility is that AOL could make it easy for its customers to choose which browser to use. The Wall Street Journal said that the companies could also be discussing marketing deals involving AOL and Netscape's Netcenter portal which analysts say would enable AOL to make inroads into the market who access the Web from work rather than home.

IN WASHINGTON, the anti-trust case brought against Microsoft by the US Department of Justice (DOJ) moved on to look at whether Microsoft's integration of browser technology into its operating system was an exercise in monopoly power or providing important improvements for consumers.

The government introduced evidence from Boeing, Gateway, NEC, IBM and Packard Bell to bolster its argument that the integration was actively not wanted by all consumers and that it served only to make competition more difficult. Microsoft responded to economist and former DOJ employee Frederick Warren-Boulton's accusation of being a monopolist saying it was "that of an ivory tower consultant with little or no direct experience in the day-to-day business and competitiveness of the US software industry".

Microsoft said its high market share was "a static snapshot of sales that does not begin to reflect the competitive dynamic in the software industry".

In a separate case involving Microsoft, a Californian judge issued a preliminary injunction, which comes into affect in 90 days, to stop Microsoft from selling any products that use Java, including Windows 98 and Internet Explorer 4, unless the software is updated to pass Sun Microsystem's Java tests.

LIQUID AUDIO and Iomega have agreed to collaborate in providing technology to allow for secure, copyright-protected distribution of digital music. In the new year, Iomega will bundle Liquid Music Player software with its removable storage devices including Zip drives. Using the unique serial number on each Zip disk as a key, the software will allow music to be downloaded from the Net, but will not allow further pirate copies to be made.

"We think serialised media provides the best available basis for protection of copyright," said Rick Fleischman, a director at Liquid Audio. "We definitely see it as the future way that music can be protected."

SEGA reported a dramatic fall in profits last week - 76 per cent down on a year ago. Sales fell by 20 per cent as profits went from $42.3m to $10.1m. The company is banking on a new 128-bit Internet console, Dreamcast, released in Japan to make up lost ground on the Nintendo 64 and Sony PlayStation. "Sega hopes to sell one million Dreamcast units by the end of the fiscal year," Shunichi Nakamura, managing director, said, "and plans to ship 500,000 units by the end of the calendar year." American and European launches of the console are not planned until late 1999.