Charles Dunstone, the chief executive of Carphone Warehouse, heralded his latest initiative as a true tipping point. At least one analyst in the City, as reported by the unusually excitable business pages of the quality press, referred to it as the harbinger of a "broadband bloodbath". One thing's for sure - we're in for an interesting summer in the telecoms business. And, indeed, this could have more than a few implications for the advertising and media markets, too.
The initiative is, of course, Carphone's launch of its "free" broadband offer. Talk Talk customers can now sign up to a package costing £21 a month that will include unlimited local and national calls plus an eight-megabyte broadband connection. That's fast - especially considering some internet service providers are still marketing "broadband" connections effectively offering less than one meg.
AOL's equivalent offer (free calls plus eight-meg broadband) costs just under £50. Cable, perhaps surprisingly, is even more expensive. Comparable packages from both ntl and Telewest have been priced at around the £60-a-month mark.
Rival companies spent last week concocting some ferocious anti-Talk Talk spin. They made much of the fact that the Talk Talk package also includes a one-off connection fee of £29.99. And that users must sign up for an 18-month contract.
Then they argued that, over the long term, the winners in the internet service business would be those with a strong brand and a long-established reputation for technological excellence and reliability.
Many observers, however, reckoned this was mere whistling in the wind.
A more common analysis was that, even factoring in Carphone's hype, it's not hard to believe we're on the threshold of a new era. A price war is now almost inevitable.
1. Broadband penetration in the UK is higher than in any other G8 nation, though we aren't even close to rivalling the likes of Singapore and other Pacific Rim countries that have invested heavily in telecoms infrastructure. Many of the UK's ISPs have to work very hard indeed, making clever use of new switching technologies, to squeeze broadband performance out of an ageing infrastructure of copper wires.
2. By the end of 2002, just under 12 million homes had a dial-up internet connection, while fewer than than two million had broadband. The crossover point came in the second quarter of 2005, when, for the first time, there were as many broadband as dial-up connections - around 7.5 million of each. Ofcom found that in November 2005, 57 per cent of all internet connections were broadband, 6.4 million were via DSL switching technologies down telephone wires and 2.5 million were via cable.
3. The big factor in this latest chapter of the broadband revolution is legislation compelling BT to open up what is known as the "local loop" - local telephone exchanges and the wires leading from these exchanges to people's houses. Previously, this had only been partially liberalised - and internet service providers had to buy connectivity on a wholesale basis from BT. Now the likes of Talk Talk can install their own switching equipment in exchanges.
4. Broadband was an important factor in ntl's proposed takeover of Virgin Mobile. The cable operator believes that the winners in an evolving market will be companies able to offer the most comprehensive packages.
5. BSkyB has also signalled its intention to be a major player in broadband with its recent acquisition of Easynet, a telecoms company with one of the largest networks of high-capacity fibre-optic cable in the UK. It intends to use this network as the basic building block of a hybrid network that will also access local loop telephony wires as it expands - it already has access to 232 unbundled BT exchanges. It will launch a broadband service in the second half of 2006.
6. Other ISPs such as AOL, Wanadoo, Bulldog and BT will almost certainly be drawn into a price war.
7. The importance of broadband to the media industry was underlined last week when Disney announced that, for a two-month trial period, it was to offer via broadband some of its most popular shows (such as Desperate Housewives and Lost) the day after broadcast on its main US network ABC. Major advertisers including Procter & Gamble are already on board.
UK CONSUMERS
- Despite attempts (stretching back at least two decades) to free up the UK's telecoms market, BT has always managed to maintain vestiges of its old monopoly status and, according to its fiercest critics, has consistently abused its dominant position.
- The bottom line is that we have been paying far too much for even basic services, such as local telephone calls. More reasonable prices will stimulate greater uptake and use of a range of services, including broadband.
- The downside is that the industry may enter a volatile boom-bust cycle. It's irritating to have to change your e-mail address every few months.
INTERNET SERVICE PROVIDERS
- Those talking of a bloodbath may well be right. If a ferocious price war breaks out, prices may well drop way below sustainable levels - and there will inevitably be casualties.
ADVERTISERS
- Despite the phenomenal growth in internet advertising in recent months, it is still far from a mainstream activity. The most recent Internet Advertising Bureau figures showed UK internet advertising spend up by almost 70 per cent year on year. What was less well publicised was the fact that brand-led FMCG advertising on the web was up by only 0.1 per cent.
- Mainstream brand advertising will not begin to grow until there's a richer range of content and an increasingly sophisticated palette of creative options available. Faster broadband available on a wider basis may deliver exactly that to a mass audience.
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