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BT tightens grip on broadband market

Satdude

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BT tightens grip on broadband market

BT moved to strengthen its position as the UK's largest provider of broadband internet access yesterday, grabbing a larger-than-expected share of new users over the second quarter of the year.

Announcing a slight rise in quarterly revenues and profits as growth in new lines of business such as IT services and broadband offset declining call charges, BT said it added 175,000 customers over the three months to the end of June, its fiscal first quarter. It now has more than 3.8 million broadband users.

Meanwhile, Carphone Warehouse, which revolutionised the market a year ago by launching "free" broadband as part of its TalkTalk offering, said yesterday it gained 126,000 customers in the same period. That performance gave the company a slightly better-than-forecast 2.4 million users and put it in third place behind Virgin Media.

Many of BT's rivals, including Carphone Warehouse and Sky, use the company's local phone lines to serve their broadband customers. At the end of June, 11.2m UK households - more than half the country - received broadband access over a BT phone line rather than Virgin Media's cable network.

That was up 459,000 on the previous quarter and, of those new connections, BT's retail business grabbed a 38% share, its best performance since the end of 2003. Virgin Media, meanwhile, is the UK's second-largest broadband provider. It had 3.4 million customers at the end of March and will update the market about its second-quarter performance next week.

But Ian Livingston, head of BT Retail, said the cable operator had suffered from intense competition. "One of the big changes from a number of years ago is we are seeing a far greater proportion of the UK [broadband] base going from cable to some sort of BT network," he said.

Issues such as Virgin Media's recent well-publicised spat with Sky over its basic channels means there has "certainly been some movement over the past six months, with all of cable's troubles", he said.

But BT, which is by no means the cheapest broadband provider, has not been immune from the fierce competition in the market. On an annualised basis its churn - which measures the proportion of customers leaving - shot up to about 21% in the quarter.

BT says it wants to offer "value" rather than just a cheap deal and is looking to products such as its recently launched BT Vision pay-TV service to tie in customers. It expects to have more than 100,000 BT Vision users by the end of the year, up from 20,000 at the end of June.

But some in the City are concerned that BT will increasingly suffer from a cost disadvantage compared with its rivals. A regulatory deal with Ofcom means BT has to let rivals place their kit in its local phone exchanges and lease them the copper wire that connects them with homes and businesses. This process, called local loop unbundling, is much cheaper for rivals than the current process, which involves buying BT's wholesale broadband product to service customers. BT Retail, however, cannot take part in unbundling.

Regards Satdude.