"Free" Broadband, Forever Launch

IanFogg | April 11, 2006, 01:32 PM

Carphone Warehouse UK today launched a new bundled offer, which they are marketing under the headline of Free Broadband, Forever.

The initial press coverage is reporting a "Broadband Price War" and is quite breathless. This is a major marketing success for Carphone, especially as free is not really free in this case, and the war is not starting it's been ongoing for the last eighteen months at least. This news is, instead, a major conflict escalation which will force the other major ISPs -- especially those leading with value-centric propositions -- to respond.

For a monthly fee of £9.99, TalkTalk customers will receive: - Unlimited local and national landline calls, 24 hours a day. - Unlimited international landline calls to 28 countries, 24 hours a day. - Up to 8 Mbps broadband access.

This offer is available from today to all customers in all 1,000 exchange areas, covering nearly 70% of the UK population. If the local exchange has not yet been unbundled, the customer will initially be connected via BT’s wholesale IP Stream service, and then migrated at a later date at no extra cost to them. The first customers will go live from the beginning of July 2006.

In addition to the monthly fee, all customers will pay the standard monthly line rental charge of £11.00.

A combined monthly subscription price of £21 a month will be less attractive to the remaining dial-up customers than Carphone hopes: 33 percent of European dial-up users said they were unwilling to pay more to their ISP even when offered the choice of cheap bundled telephony or much faster speeds. About half of the dial-up access revenues in the UK are from unmetered dial-up users. These users must be adverse to subscription packages given their long standing rejection of both unmetered dial-up and flat rate broadband products over the last six or seven years during which they have been widely available.

It's the marketing that makes this broadband product free, not the actual package detail. Other providers in Europe offer a no-monthly subscription broadband products that are instead pay per use. In the UK, Bulldog's prices start at £10.50 for phone plus DSL on a pay per use basis. The cable companies, like Bulldog and Tiscali, have long offered telephony/broadband bundles in the UK. Sky subsidiary UK Online, has an entry level product priced at just £9.99, with a similar geographical limitation but without the need to switch phone package at the same time. This Carphone product is cheap, but it's evolutionary not revolutionary.

What this package will do, is provide a natural way for Carphone to up sell their existing base of 2.6 million residential voice customers, many of whom will have an existing broadband package from another ISP. This threatens to raise churn levels in the broadband market.

Carphone's broadband customer base of 75,000, makes it a small ISP today (and not the number three broadband ISP that the FT reports as of 1pm UK time on the 11th, until they fix it), behind Tiscali, Wanadoo, AOL, BT, ntl/Telewest, Pipex and a number of others. Those providers that have expensive or non-existent telephony packages will respond with their own product announcements over the next few weeks to counter Carphone's successful press activity.

The devil is in the detail, and the reality is not as revolutionary as Carphone Warehouse is presenting. Customers must commit to an eighteen month contract; the trend in the UK is to shorter, often monthly, contracts although with some ISPs retaining 12 month contract lengths. Carphone's broadband product has a usage limit of 40Gig a month. The product will not go live until July 1st, by which time Carphone's competitors will have responded. Once customers have been migrated onto an LLU package as Carphone plans, the logistics of LLU will make it slow and painful to migrate elsewhere later, in addition to the £70 cancellation charge. Carphone have a set-up fee of £29.99 a month; many ISPs offer free installation.

Bottom line - this is more of a telephony play than it is a broadband initiative. This is not the start of a broadband or telephony price war, but an escalation of the existing war. There will be more innovative launches to come this year in the UK, and elsewhere in Europe.

Advice for clients:

- Read this: Dial-up's Lingering Death - Will Narrowband Laggards Ever Spend More with Their ISPs? which contains the consumer survey data I quoted above, plus more on dial-up users interests, and has actionable advice for ISPs.

- Clients should also send any specific questions not addressed in our published reports, and we'll set up conference calls or respond in writing, as appropriate.