Has Tiscali got what it takes to survive?

Having spent several hundred million pounds developing its technology, Homechoice was bought by Italian internet service provider Tiscali last week in a deal valuing it at up to &£100m.

Homechoice was a market leader in developing multi-play services, offering broadband internet access, television and a phone service in a bundled package. But despite novel services like 1,000 movies and 5,000 music videos available on demand, just 45,000 people signed up. A number of other potential buyers, thought to include BSkyB, have taken a look at the business recently before walking away. The question now is whether Tiscali can succeed where others have opted out.

“It needs to expand its services desperately,” says Rupert Graves, chief executive of digital media consultancy Industria Media. “There’s lots of price competition out there and the likes of Virgin, Sky and Orange offer a value proposition. Companies like Tiscali feel exposed.” He calls Tiscali a “middle-ranking” brand at the moment, but adds: “The addition of these services should help change that.”

Tiscali currently vies with Orange for fourth place in the UK broadband market, trailing behind BT, NTL/Telewest and AOL. It has some 1.2 million broadband customers, 350,000 of which also take its telephone service.

Buying technology

Against these figures, Homechoice’s user base is tiny. What Tiscali is really purchasing is not the customers, but the technology and content it hopes will allow it to compete against its rivals in an ever more crowded field. Homechoice’s owner Video Networks has agreements with all the major Hollywood studios, along with independent film companies and broadcasters such as the BBC and Nickelodeon.

Effectively Tiscali is betting that offering more content and services will help it survive at the point where broadband becomes a commodity.

“Obviously we’d like to make content available across as many platforms as possible,” says a spokeswoman for Tiscali. “The aim for us is multi-platform.”

When it relaunches as a triple-play offer at the end of the year, the Homechoice brand will be sidelined. Tiscali will then take its expanded service to other European countries. It already has 3.3 million users spread across Italy, Germany, the Netherlands and the Czech Republic, although there is speculation that it could sell its German and Dutch operations.

What do consumers want?

The difficulty Tiscali and its rivals, many of whom are also developing triple-play or even quad-play services, will face is that there is little evidence that consumers actually want them. Indeed, Homechoice’s failure to build up a sizeable user base highlights the fact that consumers are unconvinced of the need to throw all their eggs into one basket.

According to Ofcom, the number of households taking broadband, fixed telephony and cable television from one provider was 120,000 in the first quarter of the year.

While there are advantages to consumers taking these bundled offers, such as cheaper pricing, Ofcom points out that there are also disadvantages. Switching service providers is more difficult when everything has to change at once and consumers are left high and dry if the service breaks down.

Meanwhile, downward pressure on prices is likely to continue. If Tiscali is to prosper, it will have to attract more advertising pounds as well as more customers.

Graves says: “Advertising and sponsorship revenues will pay for the services. It’s going to be companies that can attract advertising and marketing that will succeed.”

Dominic Dudley

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