Free Broadband Comes to the UK

Mobile phone retailer Carphone Warehouse Group plc (London: CPW) has shaken up the U.K. telecom market by coming out with a bundled voice and free broadband package that is set to start a price war. (See Carphone Teases Free B'band.)

The move takes advantage of local loop unbundling to undercut competitors like BT Group plc (NYSE: BT; London: BTA) and ntl group ltd. (Nasdaq: NTLI) by reducing its costs and generating interconnect revenues. That will allow it charge the standard £11 pounds for line rental plus £9.99 for unlimited calls, and throw in an 8-Mbit/s broadband connection for free. There will be a one-off connection charge of £29.99.

Carphone has 2.6 million customers signed up to its TalkTalk voice package after the acquisition of One.Tel and believes the aggressive pricing will help it reach 3.5 million by March 2009, with more than half of those taking the broadband service. It has accelerated plans to unbundle 1,000 exchanges over the next three years, now saying that target will be reached by May 2007 and give it 70 percent coverage of the U.K. population. (See Carphone Dials Up Rivals.) Its acquisition of Opal Telecom will provide the network capacity to route calls.

This system will enable fast and efficient transfer of customers from Announcing the launch in conjunction with its fourth quarter trading update, the company says the launch will result in a £50 million operating loss for this financial year. (See Carphone Provides Q4 Update.)

In a statement, CFO Roger Taylor said the long-term benefits justify taking the hit: “We believe that the investment and short term profit impact are fully justified by the rapid recruitment of customers to ensure higher penetration of our unbundled exchanges. The pricing reflects what we believe to be the real costs and benefits of providing residential telephony and broadband through unbundled exchanges.”

In a note to clients, Ovum Ltd. 's Mike Cansfield says Carphone Warehouse (CW) is in a strong position to pull this off thanks it to its strong position as a high street retailer and the simplicity of the package. He writes: “We see that consolidation (One.tel and Opal) has brought a new dimension to CW's business. Secondly, we see that strength in retail can be the springboard into the telecoms services industry. Successful retailers win because they know what customers want and give it to them. Thirdly, we see the pivotal importance of systems (not networks) in opening up new areas of competition in the communications sector.”

But Cansfield also notes that LLU has caused problems for the U.K.’s service providers in switching customers over from BT. “The biggest risk seems to be that it is dependent upon BT Openreach's new automatic bulk customer transfer system, due for release on 4 July,” he writes. “Openreach to CW's own systems. CW recognizes that without this it cannot deal with the quantity of orders expected (over 70,000). If its faith in this system is justified, then it may be able to avoid the LLU pitfalls experienced by Bulldog.”

According to the Times newspaper, Carphone Warehouse has threatened to sue BT for "every penny" it will lose if the incumbent fails to deliver on time.

This is set to be the year local loop unbundling takes off in the U.K., with competitors piling into the market. Among the investors are Cable and Wireless plc (NYSE: CWP), AOL (UK) Ltd. , Sky , Wanadoo UK , and Tiscali UK . (See Time Warner Invests in UK DSL, Murdoch's Sky Takes on BT, and Unbundling Heats Up in UK.)

— Nicole Willing, Reporter, Light Reading

materialgirl 12/5/2012 | 3:57:35 AM
re: Free Broadband Comes to the UK Too bad our bought-off regulators are handing monopoly power over to our RBOCs, so they can deliver empty promises of fiber futures. I hope the open competition we are seeing in the U.K. soon puts us to shame.
jasanz 12/5/2012 | 3:57:31 AM
re: Free Broadband Comes to the UK Hi materialgirl,

Actually, I think that the USA still have a certain level of advantage over UK (and Europe, overall). You can get dry/naked DSL. Here we still need to pay around $20 a month (-ú11) to British Telecom for the pleasure of having a line, so we can pay another $20 for ADSL...

The debate about having dry ADSL in the UK is a real one and last month somebody from BT was telling in the 21st Century Communication Forum that "they were looking into it, but there were many issues to think about, both technical and political"... :)

USA has a bit of an advantage, here... The success of Vonage-alike is mainly based on the opportunity to buy broadband from one provider and flexibility to buy or not phone calls from another...
metroman 12/5/2012 | 3:57:29 AM
re: Free Broadband Comes to the UK jasanz

What you are refering to is mainly a consumer advantage rather than a market advantage. Sure consumers have a choice of renting a line or a line plus telephone service but to the end user what does this equate to? This equates to a cost advantage.

If the consumer has never known any different then they will not percieve the disadvantage. In this respect the application providers (vonage etc.) should not be disuaded from making a move in the UK market. In many households consumers have 2 lines and only run their DSL service on one of these.

In any case the UK market is somewhat easier to be a competitor in due to the demographics. The ability to get to a large proportion of the available market is a distinct advantage.

Broadband is moving towards commoditisation very quickly, the challenge is to provide services or bundles that protect overall margin. 3rd party application providers could thrive in this market with the likes of Carphone Warehouse.

The challenge is to set the right price/oversubsciption balance. If you are too cheap (carphone) then you may not ever be able to get enough capacity to sell the services that will make your money back. Communicating this to the non-technical consumer may be a challenge for Carphone's competitors and a challenge for Carphone to support their customers when their expectations are not being met.

Sign In