The UK's largest independent dial-up Internet service provider, Demon Internet, has confirmed reports that it is on the look out for a strategic investor.
The company is offering a stake of up to 49 per cent in exchange for new investment and is reported to have been locked in discussion with six possible investors, including Deutsche Telekom and mobile communications supplier Orange.
Internet analyst Chris Champion at the Yankee Group reckons US telecomms giant AT&T is a more likely candidate, buying the stake to raise the stakes against its arch-rival BT. ?AT&T wants to get into the local access market to get a highly visible presence in the UK,? he said. Any possible investor would gain access to Demon's 100,000 strong dial-up customer base.
For Demon, investment is crucial to fend off growing competition from BT and US online giants like American Online and Microsoft?s MSN. The company is on course to lose about #3 million in the year to 30 April.
?We are entering a new era for ISPs in Europe and therefore it is imperative that Demon has the right strategic partner to take advantage of the growth in the market and the forthcoming liberalisation in European telecomms,? said Cliff Stanford, Demon Internet?s managing director.
Demon?s problems are no different from those of countless ISPs in the US that have moved to a flat rate pricing scheme in order to attract customers. According to Champion, flat rate pricing such as the #10 a month Internet access Demon offers its customers is a difficult pricing structure to sustain.
?The fact that they are looking around for investment proves that they haven?t been successful at it. Flat rate pricing is a game ISPs have had to play to attract more customers but their costs continue to spiral,? said Champion.
He said many ISPs are likely to move from flat rate to banded usage schemes, where customers would be charged, for example, #10 for the first 10 hours of usage, #15 for 20 and #20 for 30.
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