Broadband access providers want to subsidise your business

There’s never been a better time to start an Internet business.

In Britain, we’re about to have a broadband price war. This is of course a good thing. Clever Carphone Warehouse, a successful mobile phone retailer, then a successful local loop unbundler and – if they keep this up – a successful broadband vendor, has decided to take on the entire market and push out ADSL (between 1 and 8Mb, depending on where you live) as a free add-on to their landline telephony products. The package looks good but the wise thing to do would probably be to wait for your own broadband supplier to fall into line as things hot up later in the year: Carphone’s package requires you to sign up for a super-long 18 month minimum contract with big penalties if you disconnect early.

The price cut is great news for Britain, already shooting up the charts for broadband take-up (in Q3 last year Britain added more broadband connections than every other country except China and the US). Broadband competition here is already very healthy. We’re seeing the payoff for some smart regulation from Ofcom and its predecessor Oftel. BT (the former monopoly) was obliged, first, to wholesale ADSL lines at reasonable prices to competitors and, later, to open up its telephone exchanges for those competitors to install their own kit. This pushed broadband and, more important, broadband competition out to the majority of British homes almost overnight.

As a result, where I live I can buy broadband access from at least a dozen competing ADSL suppliers (including BT) plus the local cable franchise (whose 10Mb offer is hard to beat) and the party’s not over yet – several major businesses are expected to join in this year, not least Sky, whose aggressive pricing and supreme packaging skill can only help. Hardly anyone in Britain is now out of reach of broadband and many interesting businesses are adding value to vanilla broadband – with video-on-demand, community IPTV and specialist gaming services, for instance.

For Carphone Warehouse, the announcement has already done the trick – analysts from Bear Stearns, Credit Suisse, Merrill Lynch and West LB have all upped their ratings or their forecasts or both. The company’s timing is impeccable. The mini-boom surrounding next generation Internet applications is picking up, usage is climbing fast in response to cheap access and new consumer kit (digital cameras and networked consoles, for instance) and that drives the virtuous circle. The truth is we’ve wound up in the place the doubters and professional industry whingers thought we’d never reach. Britain is among the most competitive broadband markets in the world and prices are falling fast while usage climbs faster.

Two insights: one, if you’ve been thinking about starting a business to soak up some of the super-cheap bandwidth that’s going to wash over British homes and businesses in the next five years, you’d better get your skates on: the warring access providers probably won’t subsidise your business forever. Two, if you were thinking of starting that business on some other platform (mobile, PS3 or, God forbid, interactive TV), think again. Price competition, booming customer take-up and rapid cultural change (like kids not watching the TV any more) means that the net is still the sweet spot for business innovation in Britain at least.

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