Global Insight Perspective | |
Significance | Vodafone has finally entered the U.K. broadband market, offering unlimited 8 MB connections for £25 a month. |
Implications | The product launch adds further vigour to the United Kingdom's already competitive and consolidating broadband market. Vodafone will be hoping that its broadband service helps to stem churn from its mobile network. |
Outlook | Given that Vodafone is unlikely to actively devote significant resources to the broadband product, Global Insight believes that its broadband numbers will hardly reach 100,000 by end-2007—that is, about 1.5% of its existing mobile post-paid customers. |
Yesterday, Vodafone finally joined the league of broadband providers in the United Kingdom with its "Vodafone at Home" broadband offer, adding further competition to a market that is already reeling from biting competition and imminent consolidation. For £25 (US$48.54) a month, customers with a Vodafone contract phone can obtain unlimited broadband of up to 8 MB, free line rental, free calls to U.K. landlines at any time and 25% off calls to mobiles. In the interim, rather than rolling out its own network via local loop unbundling, Vodafone is renting capacity from BT Wholesale—making its broadband offer available to up to 97% of U.K. households. The broadband offer, though, is subject to an 18-month contract and customers without a Vodafone mobile contract would have to pay £35 per month (see United Kingdom: 13 November 2006: Vodafone Unveils Plans for UK Broadband Offer).
Outlook and Implications
Rationality versus Hype: Among all the major new broadband offers launched since Carphone Warehouse ushered in the concept of free broadband in the United Kingdom, Vodafone's offer is the most rational broadband product on offer. By putting a price tag of £25, the company has opted for rationality rather than the hype of a "free" broadband tag that has become the latest fad amongst competing broadband providers. The price helps regulate demand, and gives the company ample time to scale up the service and avoid the nightmarish customer service woes that have trailed other free broadband products. Interestingly, despite the seemingly low "wow" effect of the price tag, Vodafone's offer does not compare badly on price compared to the offer from Carphone Warehouse, BSkyB and Orange. For example, when compared to Orange's similar unlimited 8 MB broadband offer, Vodafone's offer costs only £9 extra per month; a figure that would be reduced if the 25% discount on mobile calls and the cheaper call price to technical support are factored in.
A Reactive Response: To all intents and purposes, Vodafone's broadband product, just like BSkyB's offer, is aimed at retaining patronage in its traditional mobile product line. Challenged by the luring away of customers from its mobile network by offers of cheap broadband offers, "Vodafone at Home" is aimed at providing that same broadband deal to customers and helping convince them to remain on the Vodafone mobile network. Unlike Carphone Warehouse—and, to some extent, Orange—where broadband is the cornerstone of their corporate strategy, mobile phones remain Vodafone's preoccupation and the broadband offer is simply a catalyst to ensure continued success in the mobile sector. The current strategy of entering the broadband market through an "asset-light" approach is rather a cautious way of keeping to the barest minimum, the amount of capital overlay it needs to make to provide broadband services. Given that Vodafone is unlikely to actively devote significant resources to the broadband product, Global Insight believes that its broadband numbers will hardly reach 100,000 by end 2007—that is, about 1.5% of its existing mobile post-paid customers.