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O2 restricts its broadband reach to avoid cost of BT link

Satdude

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O2 restricts its broadband reach to avoid cost of BT link

O2 is understood to have decided not to make its residential broadband service available across the entire UK, to keep costs under control.

Last year the mobile phone company spent £50m on buying a small internet service provider, Be Broadband, but its network covers only half the British population. O2 signed a two year deal with BT this year allowing it to augment that network with a wholesale product to get nationwide coverage. But BT is an expensive way to connect rural areas, and O2 has decided not to go nationwide and opted for a low-key launch strategy.

Its rival Carphone Warehouse, for instance, loses £5 a month on each TalkTalk broadband customer connected through BT rather than directly.

O2 is understood to be under increasing pressure from its owner, Telefónica, to rein in costs. This month it was the only part of the Spanish telecoms group not to raise its annual earnings guidance, as a result of fierce competition and regulatory price cuts in Europe's saturated mobile markets. O2 is cutting a significant number of managerial posts in Ireland, and a small number of job losses are expected in Britain.

O2 has delayed its entry into the crowded UK broadband market three times. It was first going to launch at the start of the year, but pushed it back to June for fear of the customer service issues which dogged roll-out of Carphone Warehouse's "free" TalkTalk broadband service. Then in spring O2 pushed the start-date back to next month. Now it is not expected to launch until late September or early October.

A debate has been raging within O2 over how to market the service. Taking it nationwide through BT would risk O2 being another "me-too" offer and make little use of Be Broadband.

Another rival, Vodafone, has a wholesale deal with BT; its broadband costs £14 a month to mobile customers on a monthly contract, only £1 less than a traditional ISP. Other entrants are differentiating between customers on and off their network. Sky offers free broadband within reach of its network, but anyone beyond has to pay £17 a month.

O2 is expected to launch its broadband through its extensive network of retail stores, having recently integrated The Link, so it can target its service geographically where it knows its network already reaches or will soon do so. It is expected to use BT's network to fill gaps in the Be Broadband network within the geographic areas covered by its stores.

Regards Satdude.