Carphone Warehouse said its call and broadband package (Talk3) will cut residential bills by 60%. It costs 9.99 pounds ($17.45) per month, on top of the usual 11 pounds ($19.22) monthly line rental charge that all UK customers have to pay, which translates to a total monthly bill of 20.99 pounds ($36.67) per month.
This will give customers free broadband internet access and free national and international calls to landlines in all of the EU, as well as Australia, New Zealand, Canada, and the USA (28 countries in total), providing customers dial 18418 before the actual number. They can then call free-of-charge for up to 70 minutes, hang up, then dial again for another free 70 minutes.
However, it is the broadband side that is attracting the most interest. As part of the Talk3 package, customers will get broadband for free for life. This includes a broadband connection offering download speeds of up to 8MBps, and a huge 40GB monthly download limit. It also includes a free broadband modem and a one-off connection fee of 29.99 pounds ($52.40).
The standard cost of a basic broadband package in the UK is approximately 15 pounds ($26) a month, and customers pay extra for line rental and for each call.
Some experts are already comparing the move to the 1998 launch of the free ISP Freeserve by electrical retail chain Dixons when in the space of couple of years it became the largest provider of dial-up internet services. The ISP was since sold off to France Telecom SA, where it is now known as Wanadoo.
The service is going to hurt Carphone Warehouse’s short-term financials, and it predicted it will make a loss of 50m pounds ($87m) on the business this year, but hopes to make a 40m pounds ($70m) profit by 2007/2008. By then it also plans to have paid off the start-up costs for the service, estimated at 110m pounds ($192m).
This is an absolute decimation of broadband prices in the UK, said Carphone Warehouse chief executive Charles Dunstone. Talk3 torpedoes the VoIP argument, as unbundled customers get the price benefits of VoIP without having to use it.
The last point is important because Carphone Warehouse is investing 50m pounds ($87m) in local loop unbundling, which will see its own equipment installed in 1,000 UK telephone exchanges by May 2007. This will give it direct access to 70% of the UK population, and open up its capacity to offer a triple-play service (fixed-line, broadband, and mobile). Customers however need to be aware that if they live outside this LLU catchment area, there will be an additional cost involved.
The Carphone Warehouse is in the process of going through a quiet transformation from a high street-based mobile phone retailer into a telecoms company with a retail arm. At the end of last year it signaled its intentions in the fixed-line market with the 154.2m pound ($271.8m) acquisition of UK telecoms provider Onetel from utilities company Centrica Plc. This acquisition added 1.1 million customers to its TalkTalk service.
It also paid 8.5m pounds ($14.9m) for Tele2 UK Communications Ltd and Tele2 Telecommunications Services Ltd (Ireland) from Pan-European telecoms company Tele2 AB. This deal added approximately 188,000 customers in the UK and 36,000 in the Republic of Ireland, and both deals now mean that the Carphone Warehouse has roughly 10% of the UK fixed-line market, with a total UK residential voice customer base of 2.4 million, and 75,000 broadband customers.
This places it as the third-largest telephony company in the UK after market leader BT Group Plc and second-placed NTL Corp. Talk Talk customers were expected to grow to 3.5 million by March 2009, with more than 50% subscribing to broadband.
However, it did not take long for its rivals to go on the attack. Speaking to ComputerWire, a BT spokesperson questioned Carphone Warehouse’s use of the term free and highlighted the 20.99 pounds ($36.70) charge they would have to pay, along with the start-up fee. The UK market is the most competitive broadband market-place in the world, said Giles Deards. The Carphone Warehouse is just another competitor in an already crowded market-place. BT is the still the largest and fast growing ISP, winning more customers than any other ISP in the past few months.
Deards also pointed to the fact that the Carphone Warehouse’s broadband deal is only free to customers living in its LLU area, saying there are another 4,500 exchanges where it is not installing its own equipment (there are a total of 5,500 telephone exchanges in the UK). He also highlighted the quality of service BT offers, along with its wide range of offerings.
The Carphone Warehouse deal only make sense in value if you take a bundle of services and live in a LLU area, said Deards. It isn’t going to suit all customers, especially if they don’t want to tied into an 18-month contract. He also pointed to the fact that the Carphone Warehouse has no VoIP offering, and does not offer services such as BT Fusion (mobile phone that logs onto the fixed-line network when in the home zone) or BT Vision (BT’s IPTV service, due this autumn).
Another rival, NTL Corp, was also quick to respond to Carphone Warehouse’s offer. Value isn’t just about price and we have become Britain’s biggest broadband provider by offering quality and reliability, peace of mind with online protection, the convenience of an engineer installation and the freedom of unlimited access, said the director of internet at ntl Telewest, Chad Raube. Cable customers can also enjoy broadband combined with a phone service and advanced digital TV services, including TV on demand, from 30 pounds ($52.40) a month. Whereas Carphone Warehouse customers taking this new deal would be hit by bills totalling nearly 36 pounds ($62.88) if they wanted to add Sky’s basic TV package.
With close to 300 ISPs in the UK offering broadband services, Carphone Warehouse looks like it face fierce competition. In addition, the UK satellite broadcaster British Sky Broadcasting Group Plc is also reportedly set to offer broadband services in the second half of this year as a result of its 211m pound ($373m) acquisition of UK broadband service provider Easynet Group Plc.
However, Dunstone seems determined to take on his rivals and carve out a suitable customer base in the UK market-place. We are breaking the billing relationship with BT, he said.
The company also took the opportunity to announce its fourth-quarter trading figures, and said that full-year results would be in line with expectations. Analysts forecast a pretax profit of 135m pounds ($236m). Higher margin contract subscriptions rose 22.4% to 890,000, while mobile connections were up 32.8% at 2.23 million.
