Post Office tackles UK telcos

The Post Office has launched a domestic telephony service but the plan has been rubbished by analysts. A broadband product may still follow, however

The Post Office hopes to attract many BT customers to a low-cost residential telephone service that it launched on Monday, which could be the forerunner to a broadband service.

It aims to take 5 percent of BT's current residential telephony business by 2008, which would equate to around one million BT customers. It claims that its phone service would be up to 20 percent cheaper than BT's.

Gordon Steele, the executive director at the Post Office, said it has not ruled out moving into the UK's broadband market, but is initially hoping to establish credibility first through its phone service.

"It is a bit too early to be looking at broadband, directory enquiries or other technologies that are out there," said Steele. "We will look forwards at the end of the first 12 months and see how well it's going."

But analysts have doubts about the Post Office's plans. Mike Cansfield, a research director at Ovum, said its home phone offering does not offer sufficient cost savings over BT and it is likely to struggle in a market that is already very competitive.

"In terms of the offer, the Post Office claims average savings on calls of 12 percent against BT's Option prices. BT's daytime Option 1 call price is 3p per minute (minimum charge 5p), so whilst the headline percentage looks attractive, in real money the saving is small," said Cansfield in a statement. "On the line rental element, the Post Office plans to charge the same as BT so there is no cost saving for the customer."

"Turning to the market, we aren't sure why the Post Office has decided to enter the fixed-line residential market. As a market it is no longer expanding, and the Post Office will enter a very competitive segment that is red-hot already, and where prices continue to fall," Cansfield added.