C&W Neuters Bulldog

Cable and Wireless plc (NYSE: CWP) is putting its Bulldog Communications Ltd. residential broadband and voice services to sleep, opting to focus instead on the less cut-throat wholesale market. (See C&W Unveils Wholesale Strategy.)

C&W says Bulldog will continue to support its 118,000 residential and small business customers, even offering them "new innovative services," but from July 1 it will stop taking on new subscribers. It's also axing 150 jobs, mostly from sales and marketing.

In a statement, John Pluthero, group managing director for U.K. operations, said: "We believe that a wholesaling approach to the consumer and SME market is the best way to optimise our return from our unique local loop network capability." The operator says it's already in discussions with several potential customers.

Competition in the residential broadband market has been kicked up a notch in recent weeks by the likes of Carphone Warehouse Group plc (London: CPW) and Orange UK , which have launched cheap voice and broadband bundles, and it's set to intensify with the entry of more mobile operators. (See Free Broadband Comes to the UK, Orange Juices Free Broadband Battle, Vodafone Unveils Convergence Plans, and O2 Confirms DSL Aspirations.)

Bulldog isn't the only operator feeling the heat -- AOL Inc. (NYSE: AOL) has reportedly enlisted Citigroup to scope out potential buyers for its U.K. business as well as its French and German units. (See AOL Mulls Euro Broadband Exit.)

"The announcement comes as no surprise to us," writes Ovum Ltd. analyst Cesar Bachelet in a research note, citing "the damage caused by last year's Ofcom investigation (triggered by provisioning and customer service issues)," and the long-term threat to its business model from the free broadband players.

"Rather than trying to compete head-on, it makes more sense for Bulldog to leverage its investment in unbundling by becoming a potential supplier to its current rivals," according to Bachelet.

Bulldog had unbundled 411 of BT Group plc (NYSE: BT; London: BTA)'s exchanges by the end of March and still plans to nearly double that to 800 by September 30. The footprint forms part of C&W's next-generation network strategy, and the carrier will use it to provide broadband access to corporate customers in addition to Bulldog's wholesale services.

Cable & Wireless has already undergone a dramatic change in focus this year, splitting into separate domestic and international units and disconnecting 27,000 of its 30,000 corporate customers. (See C&W Stuns With Job & Customer Cuts.)

For Bulldog, Bachelet adds: "Moving to a wholesale model should bring the economies of scale needed to justify the high upfront costs of local loop unbundling (LLU), whilst reducing various operating expenses such as sales, marketing and customer support. It also aligns it with its parent company's focus on the wholesale and large enterprise segment, whilst leveraging Cable & Wireless's extensive UK network."

The operator expects limited benefits from the move to wholesale during the current financial year, as it completes the local loop rollout and invests in wholesale capabilities.

Investors apparently approve of the new strategy, pushing the company's share price up by 1.75 pence (1.65%) to 107.75 pence (US$1.98) on the London Stock Exchange in early afternoon trading, off the day's high of 109.5 pence.

— Nicole Willing, Reporter, Light Reading

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