Time Warner Invests in UK DSL

British incumbent BT Group plc (NYSE: BT; London: BTA) is coming under increasing pressure in two of its key markets, broadband and telephony, as big brand names aim to attract the hearts and dollars of Britain's consumers.

Time Warner Inc. (NYSE: TWX) is to invest up to £120 million ($214 million) in its British ISP AOL (UK) Ltd. , which will lease copper access lines from BT and install its own DSL equipment in the national carrier's local exchanges in a process known as local loop unbundling (LLU). (See AOL Unbundles in UK.)

AOL UK says its initial LLU rollout will involve installing DSLAMs in 300 of BT's exchanges, reaching 20 percent of the UK's households, at a cost of £50 million ($89.2 million).

If successful, this will be extended to 1,000 exchanges, covering half of the U.K.'s households. That would cost a further £70 million ($124.8 million), reckons AOL.

AOL spokesman and former child TV star Jonathan Lambeth says this is Time Warner's first telecom investment outside the US. "We had to make a very strong business case to get them to sign off."

He says the first priority is to get the equipment installed and up and running so that existing customers can be transferred across to the unbundled service. AOL UK currently has 1.2 million customers for its current DSL service, which uses lines wholesaled from BT, and a further 1.1 million dial-up customers. The U.K. currently has more than 6.5 million DSL users.

AOL's Lambeth says various vendors have been used in its LLU pilot programs, and a decision about which vendors to work with hasn't yet been made. He adds that while video on demand (VOD) services are part of AOL's immediate service plans, with Warner (naturally) its content partner, IPTV services are a longer way off, though "a natural step at a later date." VOD platform decisions are also still being discussed, he says.

AOL is not alone in taking the plunge into LLU. Cable and Wireless plc (NYSE: CWP) is investing through its Bulldog business, British Sky Broadcasting Group plc is to fund Easynet Ltd. 's further expanion into BT's exchanges, the Carphone Warehouse Group plc (London: CPW) has pledged to invest, and Wanadoo SA and Tiscali UK are both busy installing their own DSLAMs around the U.K. (See C&W Has $150M Broadband Plan, Murdoch's Sky Takes on BT, Carphone Dials Up Rivals, and Unbundling Heats Up in UK).

The LLU market is still in its infancy in the U.K., with just 210,000 lines unbundled. But this is increasing at 5,000 per week, a rate that would take the total to nearly half a million lines by the end of 2006. With the cost of leasing copper lines for the LLU process becoming more affordable, and with DSL equipment prices being extremely competitive, broadband consultancy Point Topic Ltd. believes 2006 will be the year unbundling really takes off in Britain. (See UK Tops Euro Broadband and BT Cuts LLU Prices.)

AOL is also considering challenging BT in the DSL wholesale market, says Lambeth, as leasing out the lines it has unbundled to smaller players that don't have the capital for LLU "would help deliver us some scale." Easynet already competes with BT in the DSL wholesale sector in the UK, where DSL users have been facing some service quality issues. (See OneTel Turns to Easynet and UK DSL Networks Getting Crammed.)

AOL isn't BT's only current competition concern. Late last week supermarket chain Tesco, which accounts for about 15 percent of all UK retail spending, announced it is offering a VOIP service in partnership with IP telephony firm Freshtel Pty . (See Tesco Offers VOIP.)

While the service, which involves plugging a phone into a PC and installing a soft client onto the computer, has its drawbacks -- the user is tied to the PC, which must be switched on, and the tariffs are higher than BT's in some cases -- Tesco, which is already active in the pre-paid mobile and fixed line telephony markets (through resale agreements), is such an enormous brand that it is certain to have an impact on the U.K. voice market, reckon analysts.

"Tesco's new offering turns up the heat even more on all voice providers, if only by raising the profile of VoIP alternatives yet further," notes Ovum Ltd. analyst Mark Main in an emailed research note, while Daiwa Securities SMBC Europe Ltd. analyst James Enck, who is based in the U.K., reckons that "people who have never heard of VoIP will be buying this, because it is cheap and because it is Tesco."

BT Retail's chief operating officer John Petter slammed Tesco's offer as "a poor deal for customers," noting that a one hour weekend or evening call on Tesco's service is 21 times more expensive than BT's cheapest service. "BT has been at the forefront of voice calls over the internet and we believe our Broadband Talk packages and BT Communicator offer a better deal," added the COO.

BT has been preparing for the demise of its traditional voice market for some time, focusing on what it calls "New Wave" growth markets such as broadband and services for large enterprises. But the telephony sector's pace of change might be quicker than Europe's incumbents predicted, as Orange (NYSE: FTE) discovered recently, when it blamed the increasing use of VOIP as one competitive factor forcing it to lower its 2006 revenue and margin projections. (See FT Warns, Europe Quakes and 'New Wave' Drives BT.)

— Ray Le Maistre, International News Editor, Light Reading

mtrehearne 12/5/2012 | 4:08:30 AM
re: Time Warner Invests in UK DSL Lucent's?
vrparente 12/5/2012 | 4:08:25 AM
re: Time Warner Invests in UK DSL IF I had to guess -- Alcatel...
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