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Goldilocks time for retail broadband

Too big, too small, just right?

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Analysis There are two main problems facing the retail broadband market: it isn't great to be small, unless you are really small, and it isn't easy to be big, unless you are really big.

For example: Pipex spent £24m expanding its customer base last week. Its acquisition of Bulldog's customers and the Toucan service make it the sixth largest retail broadband player in the UK. But will this be enough to make it a serious challenger to BT Retail, NTL, and the like?

Ovum senior analyst Mark Main is unconvinced. At the extremes of the market, things are not looking too bad. Very small firms, such as Merula, he suggests, might pull through by becoming real specialists. Although it won't be easy, he says these smaller players will survive if they are cautious and work on establishing good reputations with SMEs in their local areas.

Very big firms are also well positioned. As ever, deep pockets and recognisable brands will be very useful, and these firms have the marketing budgets to see off the competition.

The middle-sized companies, that is the lower half of the top 10, are in for a really bumpy ride.

"The middle of the market is a very, very difficult place to be. Pipex's acquisitions leave it in sixth place, but still some way behind BT et al. So what does it do now?

"Does it continue on the acquisition trail? That is probably the only way it can go," he told us.

But, when medium-sized providers try to get big, fast, it can go horribly and very publicly wrong, as Bulldog and Plusnet have learned in recent months. Orange has also suffered some teething problems, so even the bigger brands aren't immune.

For the last year or so, the important thing has been to grab territory, and waving big bandwidth numbers around has been a reliable way of attracting subscribers.

Main suggests that this preoccupation with big numbers, coupled with a failure to explain the physical limits of the technology to customers, has caused some ISPs to come unstuck. These sorts of teething problems should start to come to an end soon, though, he adds.

As Vodafone announces its arrival in the market, the focus on the land grab is starting to shift, as companies try to differentiate themselves with double, triple and even quadruple play options.

"It is a very interesting time in the broadband sector right now," he concludes. "We've not seen much in the way of different services from many players yet. Pipex has some options with mobile broadband, but then the cellular players can do that too. It is hard to see who is going to win out." ®

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