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Wednesday, 22 November 2006 06:20

Tesco to pump $12.3 million into VoIP provider Freshtel

UK retailing giant Tesco is to increase its stake in Australian VoIP provider, Freshtel (ASX: FRE) (which provides Tesco's retail VoIP offering in the UK) to 12.34 percent by investing $12.3 million.

Tesco took a six percent stake for $3.7 million in January 2006 when the VoIP deal between the two companies was announced. Earlier, in September 2005, Freshtel had raised $11 million through a placement to institutional and sophisticated investors.

Freshtel will hold and EGM for 22 December 2006 to seek shareholder approval for the placement. Andy Dewhurst, CEO of Tesco Telecoms will join the board of Freshtel Holdings.

In the notice of EGM Freshtel said: "The company believes that the private placement provides the company with many benefits, including a commitment by Tesco to the company's long-term future and support for the company's business model. As an indication of its commitment to the company's future business, Tesco has also entered into a strategic alliance with the company in relation to present and future business.

In an address to the  Freshtel's AGM earlier this month, CEO Michael Carew said: "It was quite a coup for a company of Tesco's size to partner with Freshtel – a small unknown company from the other side of the world...We have developed a terrific relationship with Tesco with true collaboration between the two companies positioning the Tesco Internet Phone extremely well in the UK market. We hope to continue to build on that relationship.

He explained that "The service is branded Tesco, the handsets are branded Tesco, Tesco's customers receive a Tesco bill and the service is sold in the UK via Tesco stores and the Tesco website. However, the network is provided by Freshtel, the hardware is designed by both Freshtel and Binatone and the software to allow Tesco to bill their customers is provided by Freshtel."

The Tesco service launched in January 2006, initially to a limited number of Tesco's stores and has now rolled out to over 380 of Tesco's premium stores across the UK. "The launch has been carefully planned through a phased roll out and was followed in July by Tesco's very significant media and marketing campaign from which we have seen strong growth in customer numbers," Carew said

In June Freshtel also launched a retail VoIP service in the UK under its own brand name. Carew told the AGM: "This dual distribution model is an evolution of our strategy as we came to realise during the year that although Tesco is the largest retailer in the UK, there is scope to more fully saturate the market outside of our Tesco relationship. The rapid uptake from other retailers highlights not only the appeal of the model, but also the quality of our product and the strength of the relationship between Binatone [which supplies Freshtel's handsets]  and many of the retailers."

At 30 June Freshtel had a total of 351,000 users on its network across wholesale and retail and the UK and Australia.


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