Carphone Warehouse's move is the latest in a series of acquisitions in the ISP sector in the UK in recent months, although the acquisition of one local loop unbundler by another is rare. (Tiscali recently acquired Homechoice, whereas O2 was not active in local loop unbundling until its acquistion of Be Broadband.) Prior to Carphone Warehouse's purchase of AOL UK, there were around eight active local loop unbundlers in the UK (including Cable and Wireless's wholesale offering). Analysys expects further mergers and acquisitions to take place before the market reaches stability with three to four players.
"With around two million broadband subscribers, the combination of AOL UK and Carphone Warehouse creates the third largest retail ISP in the UK, behind BT and ntl:Telewest, and easily the largest ISP making use of local loop unbundling," says Paul Sumner, Senior Consultant at Analysys. "Although not directly related to the broadband market, Vodafone's move yesterday to stop Carphone Warehouse from selling its mobile phone contracts will have been made with one eye on the prospects for Vodafone's own offering in the highly competitive broadband market."
Carphone Warehouse's much-publicised problems with customer installations and service levels now appear to be easing, says Sumner, although the precise long-term impact on customer perception in these areas remains to be seen. By acquiring the AOL brand in the UK, and the more family-oriented demographic of its subscriber base, Carphone Warehouse will make further progress towards alleviating these problems, while also widening the appeal of its broadband offer.
Carphone Warehouse also announced that it expected the full-year costs associated with its broadband business to reach GBP70 million rather than the initial forecast of GBP50 million.Much of this cost increase is due to demand for the service being higher than expected (increasing wholesale and customer service costs), and to a lesser degree from delays in the process of migrating subscribers from wholesale lines to unbundled lines (which have a lower cost base per line). Given the current levels of demand, these increased costs are unsurprising, and the obvious consumer interest in Carphone Warehouse's broadband offering should stand the company in good stead going forwards, as long as the company's improved levels of customer service can be maintained.