A dying breed

Bulldog has turned tail from consumer broadband, after new entrant Carphone Warehouse sparked a price war with its ‘free’ offer. Its exit looks set to be the first of many among established ISPs as big brands including Sky line up to join the high-speed access market. Robert Lester reports

Bulldog has become the second high-profile casualty of the broadband price war after owner Cable & Wireless (C&W) said last week that it would stop selling its internet service to consumers. But with telecoms giants like Carphone Warehouse and Orange already offering “free” broadband, and BSkyB preparing to launch high-speed internet access later this summer, it will almost certainly not be the last.

The C&W announcement follows AOL’s decision to put its UK arm up for sale, despite being the third largest broadband provider in this country by market share. Both cited increasingly fierce competition when conceding defeat. But with at least seven major players now installing their equipment in BT exchanges – a process known as local loop unbundling (LLU) – the war looks likely to get bloodier.

C&W head of UK operations John Pluthero believes there is only room for three major internet service providers (ISPs) in this country but, besides Sky, Vodafone is set to enter the market, currently dominated by NTL/Telewest and BT, and O2 this week bought broadband provider Be for &£50m. New entrants, led by Carphone Warehouse, are already making progress, with BT announcing last week that it had lost half a million residential phonelines to competitors who are increasing their investment in LLU.

Carphone Warehouse, Europe’s largest mobile retailer, said earlier this month that demand for its broadband service had far outstripped expectations. It has signed up 340,000 customers to the service – double its target – which is offered in conjunction with its fixed-line Talk Talk package. “Carphone Warehouse has caught the rest by surprise but what’s important now is how they react,” says Michael Philpott, broadband analyst at Ovum.

Bulldog’s new home

C&W, which has spent two years and &£278m trying to build a residential broadband service, denies the Bulldog decision was simply a reaction to Carphone Warehouse’s success. A spokeswoman says turning Bulldog into a wholesaler was the best fit with the company’s overall strategy. She adds/ “There’s a sense that we pulled out suddenly after the launch of these free offers but that’s not the case. Clearly it’s a very competitive market but we’ve been working on this for a couple of months. The likes of Sky, Orange and Carphone Warehouse already have consumer brands, but we were building one from scratch.”

Philpott believes C&W would have sold Bulldog if it had received a good enough offer. However, he dismisses suggestions from some observers that C&W should have anticipated that LLU would lead to a broadband price war and acted sooner. “It’s easy to criticise and say it should have done things differently, but it’s hard to buck the trend,” adds Philpott. “When everyone else is lowering prices what do you do?”

Bulldog invested millions of pounds in the high-profile “gate” marketing campaign devised by advertising agency WCRS. But one source says it could not mask wider problems: “In the new era of broadband, brand matters – and Bulldog didn’t build a strong consumer brand. On top of that it encountered some very significant service issues last summer. It failed to fulfil customer orders and the unbundling process ran into difficulties. There are pitfalls and traps out there and Bulldog fell into them. It let customers down.”

Pluthero does not believe Bulldog will be the last victim, saying there will be more “shake-outs” in the coming months. NTL, which has just bought Virgin Mobile, is in a strong position, according to Ian Watt, senior analyst at Enders Analysis, because it is at the centre of the “quad-play” space. He believes the single-product players, such as AOL, Tiscali and Pipex, are most at risk because they do not have a sustainable business model for the long term.

Watt thinks Sky will make a move for AOL to get it off to a strong start in the broadband market and predicts that Vodafone could buy Tiscali. It was reported last week that BT, which has just launched a service called BT Total Broadband as part of its Home Hub offer, is also in the running to buy AOL. Marcus Reynolds, planning director of Publicis Dialog and a former British Airways online marketing manager, when the airline was considering launching a pay-as-you-go ISP, says the fact that a well-established player like AOL is up for sale should act as a warning sign to other single-product players.

Squeezed in the middle

Philpott agrees there will be more casualties and believes the medium-sized players such as Tiscali and Pipex could suffer the most. “There are a large number of smaller, niche players in the market and I think there will still be room for them, as long as they continue to provide value,” he says. “The bigger players let the niche companies get on with it and, although I think some of the big guys will find it difficult, it will be particularly tough in the middle ground.”

Sky bought broadband provider Easynet for &£211m last year and is said to be considering offering “free” broadband to existing satellite subscribers when it launches its service in the coming months. A Sky spokesman says one of the key reasons it decided to buy Easynet was that it was the first “alternative telecoms provider” to unbundle an exchange. Easynet has unbundled 260 local exchanges in the UK so far and the spokesman adds that Sky expects the Easynet network to be available to about 30% of UK homes by the end of June. He says that will rise to 50% by the end of this year and 70% by the end of 2007.

“We’re seeing the beginning of the second phase of broadband development,” says the spokesman. “The first phase was about existing players that were strong in dial-up migrating to broadband. The second phase is all about network ownership and new players challenging the incumbents through innovation.”

He adds that Sky’s 8 million customers are already demonstrating an appetite for additional services, with one in five using Sky Plus or the multi-room function. Sky is pinning its hopes on the strength of its brand, and director of product strategy and management Brian Sullivan says: “Consumers are confused and want a company they can trust. We did some research and the strength of the Sky brand was probably the single most important reason we thought we could make broadband a success.”

Carphone Warehouse’s launch of “free” broadband has been dismissed as a “clever marketing ploy” by some, but it is proving to be a significant milestone in the provision of high-speed internet access in the UK. The ensuing battle looks sure to be one of the most brutal in telecoms history and only the strongest brands will survive.

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