Carphone unleashes broadband price war

Carphone Warehouse on Tuesday unleashed a broadband price war by offering “free” high-speed internet access so long as people sign up to its landline telephone service.

The UK mobile phone retailer announced that customers could get broadband with its Talk Talk phone service if they pay £20.99 ($36.70) a month to cover unlimited local and national landline calls and a landline rental fee.

Carphone, whose rapid share price growth could propel it into the FTSE 100 index of leading shares, hopes to steal customers from BT as well as broadband providers such AOL, Tiscali and Wanadoo.

Analysts said the price war could spark consolidation among smaller broadband providers or a painful shake-out in the industry. Shares of PlusNet, a niche broadband provider, plunged 22 per cent on Monday on fears of a price war and fell a further 5 per cent yesterday.

Tony Cooper, head of telecoms at Deloitte, said Carphone’s “land grab” for broadband customers would prompt consolidation among existing providers, while attracting other media and telecommunications groups with trusted brands, such as Disney, to enter the market.

“There are going to be a lot of smaller players who are just going to die on their feet,” said Ian Watt, analyst at Enders Analysis.

PlusNet said its focus on “mature” broadband users left it less exposed to Carphone’s strategy.

Charles Dunstone, Carphone’s chief executive, said: “The residential telecoms market in the UK will never be the same again. From today, broadband is a right, not a privilege.”

But BT dismissed Carphone’s broadband strategy as “just a clever marketing ploy”. “It is only free if you pay them hundreds of pounds a year for other services,” said John Petter, chief operating officer at BT Retail.

As well as “free” broadband and unlimited local and national landline calls, people who pay £20.99 will also get unlimited landline calls to 28 countries including most of Europe and the US.

But customers must take out an 18 month contract, and pay a £29.99 broadband connection fee.

Carphone’s deal will be available initially to almost 70 per cent of the UK population because it is predicated on the company installing its broadband equipment in 1,000 BT phone exchanges.

People who live outside the footprint of the exchanges must pay an additional £9.99 a month to obtain the same service.

Carphone said installing its equipment in the exchanges would result in its broadband business making a £50m operating loss during 2006-07. But it predicted an operating profit of £30m to £40m in 2007-08.

Carphone’s shares closed down 1.1 per cent at 310p.

Separately, Carphone reported fourth-quarter sales that included 2.2m “connections” of mobile phones to users, a rise of 32.8 per cent.