Breathe - who cut off the air supply?

Internet service provider Breathe is on the point of suffocation after calling in the administrators, but what caused its oxygen supply to be cut off so abruptly?

Late Friday the company, which is said to have debts of £50m, failed to secure a second round of financing and the frantic search for a buyer began. Breathe's ubiquitous and powerful advertising worked, but at a cost - leaving areas of the business neglected.

The life of an ISP in 2000 is a tough one. Ask AltaVista, Lineone, Freeserve, Virgin and others. As Breathe chief operating officer Sean Gardiner once told vnunet.com: "This is going to be a tough market and we expect to see some of our competitors fall by the wayside."

Breathe was created in 1998 by mobile phone entrepreneur Martin Dawes, who is said to have invested up to £30m in the company. Dawes now holds a 65 per cent stake in Breathe after venture capitalist groups Chase Capital and 3i invested £20m in return for a 35 per cent stake.

Dawes had planned to float Breathe at the start of next year, in a move which would have valued the company at about £100m.

Heavy spending
Breathe's collapse follows a year of heavy spending on marketing (remember the TV ad featuring people breathing the sea in and out?), in an effort to become the company that lets internet users "find entertainment, services and contacts wherever they happen to be".

In March Breathe announced that it would offer UK consumers free online access for life, despite industry concerns that unmetered services were unsustainable while providers still had to pay BT per-minute charges to use the telco's networks. Breathe offered 50,000 internet users unlimited internet access for a one-off charge of £50.

But in July, the ISP cut off 500 "heavy breathers" who it said exploited the service by logging on for long periods and hogging bandwidth. Then, earlier this month, the curtain came down on the service altogether as "excessive use and an unviable business model" made the service unsustainable.

Another expensive exercise for Breathe was promoting its mobile service. It gave away thousands of internet-enabled mobile phones in an attempt to attract visitors to its mobile portal. The ISP also tried to boost its mobile internet subscriber base by offering free unmetered Wap calls throughout November.

According to some analysts, Breathe should have invested its money and efforts into building its infrastructure and services rather than trying to market itself as one of the UK's leading ISPs.

Ariane Afrough, senior research analyst at IDC, said: "Breathe should have invested more of its money in infrastructure rather than on promoting itself. It is probably not a clever strategy to heavily advertise a service only to cut off 500 users after a few months. It should have spent less money on advertising."

"There is a lot of consolidation in the market and the smaller players will be swallowed up," Afrough added. "I am sure Breathe will be bought by a larger player, which is sad from the consumer's point of view as the number of choices [of ISP] decreases."

Testing times
Research group Ovum said Breathe suffered from its attempts to establish itself as the leading brand name across all access platforms and believes the ISP will find it difficult to reposition itself if it does find a buyer.

"Breathe was always going to be in the shadow and playing second fiddle to the bigger ISPs such as AOL and Freeserve," said Ovum analyst Henning Dransfeld. "It did not have a valid business case with its unmetered offering and was never going to make revenues."

"Breathe launched a big marketing campaign and hoped to position itself in the mobile internet market, but Wap has never really taken off in the UK," said Dransfeld.

"It might be possible for it to find a buyer, but it will find it difficult to reposition itself in a broader market. It may need to offer something to a more specialised sector."

So a search is now on for a buyer for Breathe. PricewaterhouseCoopers, appointed as administrator on Friday following a hearing in Manchester, said the ISP will continue to trade while it looks for interested parties.

But with investors shying away from dotcoms, Breathe may find it hard to attract a buyer with rival ISP Lineone also up for grabs. Lineone was put up for sale by joint owners BTopenworld and United News & Media at the end of last month.

Telecoms operator Opal Telecom has been linked with a move to take over Breathe, but the company is so far distancing itself from the proceedings. In a statement Opal said: "Opal's largest shareholder, Neil McArthur, the founder and chief operating officer of Opal, has no interest in Breathe."

So for now the ISP and its customers must hold their breath and wait.