Line One, the online service from BT, News International and United News and Media, has axed staff following poor financial performance.
The move comes as the company prepares for competition with the raft of free ISPs that have recently appeared on the market, led by Dixons' Freeserve.
At Line One the whole billing department has been laid off and another 40 freelance staff have not had their contracts renewed. This amounts to nearly half of Line One's 110 employees.
The news came a week after company insiders said Line One would drop its #9.99 monthly subscription charge (see PC Week, 16 February) and as speculation increased that The Sun newspaper, owned by News International, would launch its own free Internet service.
A spokesperson for Line One insisted the redundancies are "part of an ongoing restructuring to a new business model", and not an indication that the service is preparing to fold.
However, the company has not confirmed whether it will continue to provide its own content or whether it will be forced by these cuts to revert to being just another Internet access provider.
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