Vodafone Joins British Broadband Race   

Mobile giant Vodafone is set to enter the British broadband market before the year-end, becoming the latest big-name entrant in the United Kingdom’s highly competitive broadband market. Instead of pursuing the acquisition route adopted by rival mobile operator O2, Vodafone is adopting the broadband resale option and has signed a "heads of terms" agreement with BT to offer Vodafone-branded fixed-line broadband services.

"Today's announcement is a strategically important step in the evolution of Vodafone's business in the U.K. ," said Vodafone U.K. chief executive Nick Read. "This news is further evidence of Vodafone delivering on its strategy and providing its customers with a total communications solution wherever they are."

Vodafone plans to offer fixed/mobile bundled services through BT Wholesale to continue the relationship between the two U.K. companies. In 2004, Vodafone and BT signed an MVNO partnership agreement culminating in the launch of BT's mobility solutions, including BT Fusion in 2005.

Outlook and Implications  

• New Era: For Vodafone U.K., fixed-line broadband is an ideal product to help bolster its mobile services. The combination of mobile and fixed-line broadband services will boost the company's competitiveness and help it to check the advances of O2 and Orange, which also offer broadband. The prospect of offering fixed-line broadband services signals the beginning of a new era for Vodafone Group and the end of its mobile-only approach to telecoms services. In May 2006, chief executive Arun Sarin announced a major strategic change that will see the group offer fixed-line services across its European footprint. Already, Vodafone Germany is preparing for the launch of fixed-line services this quarter, while the group's Portuguese unit is bidding for Portuguese fixed-line unit ONI, the telecoms arm of Energias de Portugal (EDP). With fixed-line broadband services confirmed for Germany and the United Kingdom, the focus will shift to the group's Italian, Spanish, and Dutch operations (see Portugal: 16 August 2006: Vodafone Mulls Converged Fixed-Mobile Services, Germany: 7 June 2006: Vodafone Germany Plans ADSL Move in Q3 and World: 30 May 2006: Vodafone Hit by Asset Write-Down, Unveils New Strategy).  
  
• Renting Versus Buying: Rather than plunging into the acquisition route, snapping up an existing broadband provider with an established customer base and operational know-how, Vodafone has opted for a more cautious approach in becoming a simple reseller of BT's broadband package. Although this strategy may prove a lot easier to realise, it comes with serious handicaps. At a time when new entrants into the broadband marketplace are pursuing LLU as the ideal strategy to differentiate their broadband services, Vodafone's renting option bars it from embellishing the broadband offers from BT. Its reseller approach means that its broadband strategy is wholly pinned on wooing customers through the strength of its brand name and, perhaps, on price. However, customers are becoming savvier, and prices could well be close to their barest minimum. The ability of LLU players to control the broadband speeds they deliver, offer VoIP services, and potentially offer IP TV services, will remain a greater force than Vodafone's brand name. A probable disappointing adoption rate will inevitably force the company to rethink the acquisition / LLU route.  
  
• Crowded Broadband Marketplace: Vodafone's entry in the highly competitive British broadband market means that T-Mobile and 3 U.K. are the only big-name telecoms companies in the country without a foothold in the fixed-line broadband market. In the past six months, Carphone Warehouse, O2 and BSkyB have joined the market, tightening the squeeze and forcing smaller operators, or bigger ones without the recourses or zeal to compete at the top level, out. However, the market is increasingly maturing. Given the quasi-finite number of households in the country, there may not be enough room for all the providers to attain impressive growth rates. Unlike the mobile area (where an individual can more have more than one phone), residential broadband connection is mostly limited to one per household. Already, a report published by the British National Office of Statistics in August revealed that the 5.5% quarter-on-quarter (q/q) growth rate is the slowest in four years (see United Kingdom: 24 August 2006: Broadband Surges to 72.6% of all British Internet Connections, Regulator Calls for New Rules on VoIP).