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Carphone unveils 'free' broadband

'Broadband a right, not a privilege'

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The Carphone Warehouse has fleshed out details of a new bundled broadband and phone service that is half the price of its nearest rival. The offer, which is being plugged as "free broadband forever" massively undercuts similar services from leading players such as AOL, BT, and cableco NTL:Telewest.

To take up the offer punters must subscribe to Carphone's TalkTalk fixed line phone service. For £9.99 a month, punters get unlimited local and national landline calls, unlimited international landline calls to 28 countries and up to 8 meg broadband access.

In addition to the monthly fee, customers are also faced with paying a monthly line rental charge of £11.00. The total cost of line rental, calls and broadband is just £20.99 a month.

A similar package from BT would cost more than £55 a month while rival local loop unbundling outfit Bulldog can currently do it for just over £42 a month.

Announcing its ambitious plans to cut more than 60 per cent off the average cost of residential phone and broadband bills Carphone chief exec Charles Dunstone said: "The residential telecoms market in the UK will never be the same again. From today, broadband is a right, not a privilege."

Carphone is able to offer such competitive prices because it is investing megabucks in local loop unbundling (LLU) - a process by which it installs its kit in BT's telephone exchanges to provide services direct to end users.

Even though Carphone's targeting 1,000 exchanges serving around 70 per cent of the UK population, it means a sizeable minority of people in the UK will not be able to subscribe to this offer at this price. Punters outside Carphone's LLU footprint will have to stump up an extra £9.99 for the package.

Anyone signing up to the service is also tied in to an 18 month contract, must adhere to a 40 gig a month download limit and shell out a one-off £30 connection fee.

Of course, all of this doesn't come cheap. The firm reckons that this investment will result in an operating loss of around £50m this year. Add on the investment in LLU, operating losses and all other associated costs, and the firm reckons it will set it back around £110m. However, it reckons that by 2008 it could soon be payback time with an operating profit of £30 - £40m.

Said CFO Roger Taylor: "We believe that the investment and short term profit impact are fully justified by the rapid recruitment of customers to ensure higher penetration of our unbundled exchanges. The pricing reflects what we believe to be the real costs and benefits of providing residential telephony and broadband through unbundled exchanges."

Carphone has around 2.6 million residential voice customers in the UK under the TalkTalk brand. As a result of this aggressive pricing strategy it aims to have 3.5 million residential customers by March 2009, of which over half are likely to be combined voice and broadband customers. ®

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