BT aims to dominate with no-frills broadband

BT Retail says its low-cost, DIY approach will force other broadband services to change their ways

BT Retail believes it can capture half of the UK's consumer broadband market with its new "no-frills" high-speed Internet access product, and kick-start the broadband applications sector in the process. The company is confident that millions of people in the UK will sign up for its BT Broadband product, which gives customers a fast Internet connection but doesn't include services such as email or Web space, within the next few years. BT Broadband quietly went on sale last week, but is expected to have a full launch this September. Chief executive Ben Verwaayen recently announced BT Group's broadband targets for the next five years. BT is aiming to have one million wholesale ADSL customers by the summer of 2003, and five million wholesale ADSL customers by 2006. BT Retail, like other ISPs such as Freeserve, AOL and BTopenworld, will buy broadband connections from BT Wholesale and resell them to customers. Speaking to ZDNet UK, Angus Porter, the managing director of BT Retail's consumer division, said he was confident that there would be at least 500,000 BT Broadband subscribers in 12 months' time. "I think the target of one million broadband users by next summer will be met -- it's stretching but hardly daft -- and about half a million of them will be BT Broadband users," said Porter. He added that he expected that BT Retail would have at least 2.5 million users by 2006, or half of the targeted five million ADSL users. If Porter is correct, then BT Retail will soon have more broadband customers than any other UK ISP. "I'm confident that we'll have overtaken BTopenworld by next summer," Porter said. According to Oftel's latest figures there are around 251,000 ADSL users in the UK, out of a total of some 600,000 consumer broadband users. The end of the ISP?
Some industry observers have claimed that BT Broadband poses a serious risk to the UK's ISP sector. At £27 per month, BT Broadband will be £3 per month cheaper than BTopenworld and Freeserve's broadband products, and £8 cheaper than AOL's. Some ISPs, such as Pipex, are offering broadband for less than £25 per month -- but Porter doesn't think such prices are sustainable in the long term. "We pay about £18 per month, excluding VAT, to BT Wholesale for the network access products, so there isn't much margin when we charge £27 including VAT," he said. According to Porter, the break-even price of consumer broadband, using BT Wholesale's ADSL product, is around £25 to £26 per month. BT Retail's vision is that customers will buy BT Broadband, and then look to other online companies for services such as email, gaming and video networking. Any other ISP could offer a no-frills broadband product by buying the same network products from BT Wholesale. Porter said he didn't believe that another ISP will follow BT Retail's lead because their business plans revolve around content. "Most ISPs are more interested in owning a customer from end-to-end than in building the broadband market," he said. Porter added that a company that provides other types of services to customers might be interested in no-frills broadband. One such company could be Centrica -- formerly known as British Gas -- which recently bought Iomart's broadband operations. Most ISPs will be forced to offer compelling services and products if they are to compete with BT Broadband, argued Porter. "ISPs who only provide connectivity and have nothing else to offer will be threatened by BT Broadband. Larger ISPs need to decide what they will compete on, and might consider partnering with BT Broadband and offering products and services to one million or two million customers," he predicted. "ISPs must decide what their unique selling point is -- just offering email as well as a broadband connection probably won't be enough." AOL, for example, is selling its recently unveiled broadband product at a premium -- £34.99 -- and relying on its international brand to lure subscribers. Besides the world's largest online community, the service gives access to content from AOL Time Warner brands, including previews for films like Harry Potter and Lord of The Rings, cartoons from the Cartoon Network and video from CNN and the BBC.

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