Centrica to challenge BT over broadband services

Services group Centrica looks set to challenge BT's dominance of the broadband market after buying Iomart's high-speed Internet operations.

Iomart announced on Wednesday that it has sold its high-speed Internet services division to Centrica for £2m. Iomart is planning to concentrate on its Internet security and messaging products, and believes that a consumer-focused organisation such as Centrica will be more able to succeed in the broadband arena.

"Iomart's broadband division was doing very well in a difficult market. However, if broadband is ever going to become a mass-market product it will need to be driven by a company with deep pockets and considerable expertise in the consumer arena," explained Phil Worms, director of broadband products and services at Centrica.

Worms, like everyone else who used to work for Iomart's broadband division, has now been transferred to Centrica. Worms insists that it is too early to say what precise plans Centrica has for its new broadband operations, but it seems likely that the company's considerable financial muscle will be used to boost consumer interest in high-speed Internet services.

Iomart, which had 2,750 broadband customers, has been reselling DSL from BT Wholesale. Although it had been keen to compete directly in the wholesale market through local-loop unbunding (LLU), it never actually managed to install its own equipment in BT's local exchanges.

"Economically, LLU didn't make sense for a company of Iomart's size," explained Worms. "It would need considerable capital expenditure, and it would be a big risk because broadband isn't really that popular with the public yet. A lot of education is still needed."

Worms was unable to say whether or not Centrica was planning to become involved in LLU, but indicated that such a move is likely. "All aspects of broadband are being considered by Centrica. We're going to be sitting down over the next couple of weeks to work out the way forward," he said.

BT recently launched a marketing campaign aimed at encouraging consumers who live close to a DSL-enabled local exchange to upgrade to broadband. Industry experts and government advisers agree that increasing the public understanding of broadband is very important in boosting take-up.

Centrica, which owns British Gas and Scottish Gas, the AA, the Goldfish credit card and recently bought One.Tel UK, has considerable experience in the consumer market. According to Worms, Centrica already has 1.1 million telephone customers -- which could be a very valuable asset to its new broadband division.

Shares in Iomart rose by around 16 percent when the news was announced on Wednesday morning.

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