Scottish Telecom has purchased Demon Internet, formerly the UK's largest independent consumer Internet service provider, in a #66 million deal.
As 'VNU Newswire' revealed exclusively at the start of this month, Scottish Telecom - the telecomms division of Scottish Power - will add Demon Internet's infrastructure and its 180,000-strong customer base to its existing Internet ventures Scotland On Line and Prestel On Line.
"This acquisition establishes us as a leading provider of Internet access in the UK both in the business and residential markets. The provision of online and telecomms based information has become an increasingly important element of our business," said Rod Mathews, chief executive of Scottish Telecom.
Roy Bliss, new managing director of Demon Internet, said the deal would allow the ISP to benefit from Scottish Power's very large network infrastructure, lowering network access costs and increasing speed for dial-up customers.
The deal provides for much greater investment in Demon Internet's infrastructure than would have been possible as an independent. The company plans further expansion into Europe beyond its Netherlands foothold and there was even great potential in the future said Bliss for providing Internet access via the electricity supply.
Chris Lewis, Internet analyst at the Yankee Group, said he had not doubt that there would be further consolidation amongst smaller UK ISPs but that some would simply be churned out of existence.
"Smaller ISPs will struggle. Some will move to being content providers more oriented to vertical markets, but the question has to be asked whether many are big enough to carry on," he said.
The larger ISPs would increasingly become more like the telcos he noted, offering a wider variety of service than just Internet access and site hosting in order to supplement revenues.
The takeover sees the departure of Demon Internet's high profile managing director Cliff Stanford to work on other Internet related projects, although the departure is believed to be amicable. He takes with him up to an estimated #30 million following the acquisition.
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