Carphone Warehouse rescued with AOL buy
There's method behind the madness
AOL to the rescue
AOL has 1.3m broadband customers, which gives scale (and LLU is all about economies of scale). It also has 400 DLEs unbundled with a roll-out plan to 1,000. This is all based on Fujitsu kit, and it has an engineering base in the UK and has been doing the roll-out for AOL.
Now CPW can instantly migrate its users onto its own unbundled DLEs (the 400 will be in the most population heavy areas, so probably most of CPW's customers too) and turn that £5.68 per month loss into a profit (albeit a small one).
Though the above figures are accurate in terms of costs (see assumptions below), it's very difficult to know what CPW is actually doing and how it loads the pipes, etc. According to its half-year results it made a (six month) loss of £37.7m (for the broadband service) and had 461,000 broadband customers, which works out to a loss of £14.94 per user per month. However, that loss probably covers LLU roll-out and other factors.
A big advantage in buying AOL (apart from maybe making some money out of LLU migrations) is that it has a working, scalable provisioning system. You don't hear of problems with AOL users losing connections when they sign-up.
So though £370m may initially seem a lot, its saved CPW probably a year's worth of unbundling and a provisioning system that works. It just needs to migrate its customers over to the AOL platforms as soon as possible.
Of course, now CPW has to go the whole hog and start running triple or quad plays, internet and free calls won't cut it for long. It'll be video and mobile integration and other services which make consumers pay and allow CPW to generate a profit for its shareholders. AOL brings a part of the solution with it, content which puts it in a strong position against the likes of BSkyB. Given it also has a mobile solution, this should give it the ability to offer a strong quad play solution of voice, video, mobile and broadband - which means it may well be able to offer competitive competition to players such as NTL:Telewest (soon to be Virgin Media) and BT.
Consolidation is going to continue within the internet and telecoms industry, but it looks like Carphone Warehouse is going to be one of the survivors. ®
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