Tiscali Buys Into IPTV

Broadband service provider Tiscali UK says it will enter the IPTV space through an all-stock merger with Video Networks Ltd. (VNL) , which operates a triple-play service in London under the HomeChoice brand. (See Tiscali, Video Networks to Merge.)

According to a company statement, Tiscali will acquire 100 percent ownership of Video Networks in exchange for which VNL shareholders will get an 11.5 percent stake in Tiscali, which could be increased to 20 percent if “certain performance” targets are reached. After three years, VNL has the right to sell the stake, or Tiscali can buy it back.

The HomeChoice service includes broadcast and pay TV channels, video on demand, and call packages over a broadband line. VNL has been operating video-over-IP services in some form since the late 1990s, but has never been able to get its subscriber count off the ground. Despite expanding its network to 2.4 million homes through local loop unbundling, the company had just 45,000 paying customers at the end of June.

As Ovum Ltd. analyst Mark Main writes in a research note, "taking on the cable operators with a little-known brand in some of their strongest footholds was never going to be easy, despite fairly sustained marketing, particularly in recent times." The company has long been the object of acquisition rumors and several months ago warned it could run out of money within a year unless it raised new funding.

The Tiscali/VNL deal is the latest in a string of mergers and acquisitions in the U.K. telecom market, which is in a state of flux as operators do battle with broadband bundles. The likes of Carphone Warehouse Group plc (London: CPW) and Orange UK (formerly Wanadoo) have recently introduced “free” broadband packages, while mobile operators are looking to buy or build their own fixed networks to offer converged services. With such intense competition, several carriers have been fleeing for the exits or bulking up through consolidation. (See Europe's Abuzz With Broadband Buyouts and Broadband Fuels Euro Action.)

Alongside its high-speed Internet service, Tiscali has been offering re-branded content -- such as Loudeye's music streaming and download service -- though its online portal, and it launched a free VOIP service in June. (See Tiscali UK Offers Free VOIP.) But as Ovum's Main points out, "the missing component has been a TV service."

Following the integration, Tiscali, the U.K.'s fourth biggest broadband provider, will have more than 1.3 million DSL subscribers, of which 350,000 will be taking voice and broadband, and more than 45,000 will be the IPTV subscribers. Video Networks also brings with it 145 unbundled BT exchanges, extending Tiscali's LLU network to 300 exchanges. Its target is to install its equipment in 600 exchanges by the end of the year.

Even after the acquisition, "the combined companies will be looking to take on arguably rather bigger players in the IPTV/triple-play market," writes Main. "The strategy that the combined company chooses to follow will be interesting - Sky , BT Group plc (NYSE: BT; London: BTA) (once it launches BT Vision) and ntl group ltd. (Nasdaq: NTLI) particularly will be no pushover."

Tommaso Pompei, CEO of the Tiscali Group, said in the company’s statement that Tiscali will also export the new triple-play service to its other operations in Europe, namely Italy, Germany, the Netherlands, and the Czech Republic: "The Triple Play offer in the UK will be launched by the end of the year and will be immediately followed by the launch of the service in Italy and then in the other markets."

— Nicole Willing, Reporter, Light Reading