When telecoms giant BT proclaims its strategy is broadband first and telecoms second, it is easy to see why Tiscali’s UK assets are being eyed by brands eager to build or break into the sector.
Yet analysts warn that offering broadband alone – or broadband and telephony alone – will no longer be enough. Market leader BT offers a triple play, with its IPTV service BT Vision. Cable company Virgin Media offers up to four services, including mobile, while BSkyB, which has the UK’s fastest-growing broadband service, also bundles TV and phone services. France Telecom-owned Orange, which offers broadband, is expected to offer an IPTV service “imminently” and already does so in France.
BT’s first-quarter results last week reported a 30% increase in residential broadband customers. A BT spokesman says the company’s strategy has been to put broadband at the hub of its offering and telephony second.
Analysts say Vodafone is primed to take on Tiscali’s UK broadband business, which has 1.7 million broadband customers, after reports that an approach by Charles Dunstone’s Carphone Warehouse has been rebuffed. Had Carphone Warehouse, with 2.7 million customers, snared the business it would have leapfrogged market leader
BT, which has 4.25 million customers, and second placed Virgin Media.
Virgin Media and BSkyB are also mooted to be on a shortlist of six for the Italian broadband company, which has a market value of about £1.13bn and UK assets worth over £550m. Vodafone already has fixed-line assets in Italy through its acquisition of the Tele2 business last year. It provides some broadband in the UK through a wholesale deal with BT, although some question whether its UK strategy is too little, too late.
Martin Olausson, Strategy Analytics director of digital media strategies, says Vodafone may struggle to be a key player, even with Tiscali. He adds: “It’s very late in the transition, but the next step will be for providers to offer more telephony as well.”
He says that market consolidation is inevitable over the next few years, particularly in the “fragmented” UK market. He says: “Any big market cannot afford more than four key players.”
This, despite a growing market. Strategy Analytics director of broadband Ben Piper predicts UK broadband subscriptions will increase by 3.6% between 2008 and 2012, to 42 million users.
Olausson says in the long term key providers will have to include “triple play” – TV, telephony and broadband – and that the next provider to watch will be Carphone Warehouse: “It is offering broadband and telephony – a dual-play, rather than triple-play. It needs to address that or get out of the market.” Tiscali, which houses former Homechoice IPTV service Tiscali TV would have offered this.
Piper says the next step for providers is to move into “quad-play”, where services such as home security will be added to the triple-play format.
Ovum principal analyst Michael Philpott concurs, but adds: “There is still a lot of discussion about moving to quad play, but it’s hard to make the link between mobile devices and broadband.” He suggests that mainland European markets such as France are more advanced: “You could certainly see a vision of the future where there are three major players. With the mobile players it is a question of whether they can break into the broadband market.”
The broadband market in the UK is close to consolidation. Brands such as Vodafone will need to step up and fight, but face a struggle to become big players in an all-in market moving swiftly towards a bundled offering.