Dixons to launch 'son of Freeserve'

DSG International, the retailer behind Dixons, PC World and Currys, is on the verge of launching a new business that will offer low-cost telephone calls over the internet.

The move will be a direct challenge to BT Group's revenues and dominance of the home phone market and aims to build on Dixons' experience of internet businesses gained from its hugely successful Freeserve operation, which launched in 1998 and ultimately netted the group more than £600m.

The new service, to be launched next week, uses the fast- growing technology of VoIP (Voice over Internet Protocol) which is designed to route voice calls over the internet at no extra cost using a customer's existing broadband connection. Calls are either free to other people using the same service provider or customers simply buy a bundle of 500 or more minutes of voice calls for a few pounds a month. Calls outside the user group, or those made once a bundle of minutes is used up, are charged at much cheaper rates than traditional telecoms networks.

Revenue can also be generated from services such as voicemail and call-forwarding. Dixons could also charge a joining fee.

Internet telephony is seen as the future of telecoms and eBay, the online auction site, last week agreed to pay up to $4.1bn (£2.26bn) for Skype, which provides software that enables consumers to convert their internet connections to carry voice calls, as well as data such as e-mails.

DSG plans to roll out its new service through its nationwide network of 1,400 stores including Dixons, PC World, The Link and Currys. The company's distribution capability means it can build a network of users to create critical mass for the service relatively quickly.

DSG believes the new service will prove a major innovation in the home communications market and will give people access to a low-cost, state-of-the-art service which will make an emerging technology a household reality within a very short period.

The company declined to comment yesterday, saying the new service remained under wraps. However, it is planning a major launch next Tuesday where Simon Turner, DSG's group managing director of its computing and communications division, will unveil details of the service.

At the moment DSG promotes the internet services of AOL through its shops, having ditched Freeserve two years ago. It is likely it will sell its internet telephone service as a stand-alone product to existing broadband customers and also as part of a package to new broadband users.

The launch of a new internet-based business by DSG will bring back happy memories ofFreeserve, now owned by France Telecom and since rebranded Wanadoo, which became the UK's biggest internet service provider after Dixons launched it in 1998. Dixons floated a 20 per cent stake for £300m in August 1999, valuing the whole of Freeserve at £1.5bn. Its value subsequently ballooned to £8bn in 2000, giving it a place in the FTSE 100. Dixons eventually netted a further £312m by the sale of its remaining Freeserve stake.

Internet telephony is beginning to be taken up by businesses and online enthusiasts but although 52 million people worldwide are said to have downloaded Skype's software the idea is yet to take off in the mainstream.

BT does has a voice-over-internet service called BT Connector, which it operates with Yahoo!, but it does not promote it. Switch Call, a rival start-up internet telephone service also launched yesterday charging £5 for 500 minutes plus a joining fee of £24.95.