Vodafone entering U.K. fixed-line broadband market

Company strikes deal with BT Wholesale to sell broadband Net service in Britain and bundle it with mobile offerings.

Vodafone has finally confirmed it will be aping its competitors with a definitive move into fixed-line broadband.

The mobile operator on Monday announced it will be reselling DSL from BT Wholesale under its own brand before the end of the year. It declined to release pricing details.

Under the plan, Vodafone will be able to sell broadband access across the U.K. without having to invest in local loop unbundling, where companies install their own gear in BT's exchanges--a strategy favored by the likes of Orange Broadband (formerly Wanadoo) and Cable & Wireless.

Given the intense competition in this sector, Vodafone will be under considerable pressure to generate a return on investment. The company has already been selling DSL service to its business customers, but this is the first time it has offered such services in the retail market, where price, as well as download and upload speeds, are competitive weapons.

Tim Yates, director of Vodafone's consumer business, told Silicon.com that Vodafone will not be looking to sign an additional deal with another ISP to match the speeds its competitors can offer. "We're not planning to do that. We're comfortable with what BT can offer. It's comparable, if not better than, anything else out there," he said.

In addition to being saddled with offering average speeds, Vodafone will also have to work hard to compete on price. Several ISPs, including Carphone Warehouse and Sky Link, are giving away "free" broadband to customers signing up for bundled services.

Vodafone's mobile competitors have already gotten in on the broadband act. Orange is doing its own "free" offer for mobile subscribers, while O2 recently bought high-speed ISP Be, which sells next-generation ADSL2+ (asymetric digital subscriber line) broadband--capable, in theory, of delivering speeds up to 24Mbps.

JupiterResearch analyst Ian Fogg said Vodafone's broadband maneuver was not a simple me-too decision.

"Given the massive price pressure and the free broadband offer, the question (for mobile operators doing broadband) is: Where is the return on investment going to come from? There's a significant risk with capital investment in infrastructure. Vodafone (is) minimizing the risk by not making that infrastructure investment in broadband in the U.K.," he said.

Ovum analyst John Delaney concurred that it makes sense for Vodafone not to go it alone.

"The regulatory and commercial conditions in the U.K. are now more favorable than ever to a company wishing to offer ADSL by wholesaling IP streams over telco-owned lines, and so it makes sense for Vodafone to enter the market in this way rather than to invest straight away in a facilities-owning approach," Delaney said in a research note. "Although it would provide more flexibility, it would require both significant (capital expenditure) and a fixed skill set currently not available in-house."

The company's CEO, Arun Sarin, told journalists in May that the operator was categorically uninterested in buying or becoming an ISP in the U.K.

Sarin told investors the operator's broadband strategy will be defined country by country. In Germany, one of Vodafone's key markets, the operator has its own fixed-line unit, a result of its acquisition of mobile-phone company Mannesmann.

Jo Best of Silicon.com reported from London.

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