Mid-market broadband players set for squeeze after AOL buyout

Carphone Warehouse’s acquisition of AOL will lead to further consolidation in the UK broadband market that could spell the end of middle-market players like Tiscali and Pipex, according to several leading analysts.

The deal makes Carphone Warehouse the number three high-speed internet provider in the UK behind BT and NTL. Carphone will have 2.1 million subscribers.

Scott Morrison, director at leading telecom analysts Gartner research, says: "You basically have to have millions of subscribers in this market because it is hyper-competitive."

Earlier this year, Carphone Warehouse chief executive Charles Dunstone triggered a price war when he launched "free" high-speed internet access to customers who signed up to the company’s fixed-line service, Talk Talk.

BSkyB and Orange have already responded with similar deals, and BT and NTL are putting the finishing touches to their offerings. Mobile giants Vodafone and O2 are also gearing up to launch broadband in the UK.

Ovum analyst Michael Philpott says: "The Carphone Warehouse-AOL deal certainly puts pressure on the bigger players and there will be further consolidation in the future. I think we will see more mergers and possibly some brands disappearing altogether."

Tiscali, which has a 10% share of the market, recently bought digital television provider Homechoice to enable it to offer content. But Ian Watt, senior analyst at Enders Analysis, believes Tiscali and Pipex are still the most vulnerable brands.

He says: "Tiscali is looking to bolster its position but we can’t really see that happening. We’ve never really been fans of Homechoice, and the action is now in user-generated content with the emergence of YouTube."

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