Carphone Warehouse guns for UK top spot

The Carphone Warehouse seems to be coming out as favourite to buy Tiscali's UK broadband business. If the deal were to go through, it would be a significant step for Carphone because it would acquire an IPTV business and the right to call itself the biggest broadband service provider in the UK.

Ovum does not normally comment on rumours and industry speculation. Indeed, this deal might never get off the ground as, according to reports, Carphone is only interested in Tiscali's UK business, and Tiscali has stated it is not interested in splitting its operations up. However, we felt this one was worth commenting on given the importance of such a development if it were to go ahead.

Acquiring Tiscali's UK business would make Carphone the biggest broadband service provider in the UK, leapfrogging both Virgin Media and BT (the UK incumbent operator). Not bad, given that Carphone didn't launch its broadband business until 2006.

However, this will not be the only reason for Carphone's interest. In August 2006 Tiscali acquired Homechoice, a small but innovative IPTV player. For sometime Carphone has been wondering what to do about IPTV, wondering if it were to launch how it should go about it. Although buying Tiscali would not be an instant solution - a lot of work around marketing, brand and content strategy would still need to be done - it would certainly provide Carphone with an IPTV platform and technical expertise.

If Tiscali decides that selling is the best option, it may have little choice but to split up the business as the number of potential suitors wishing to take on both the UK and Italian parts of the business is likely to be limited. Tiscali may seek a premium to do this, but Carphone and other potential buyers will only be prepared to pay so much - so it may be a case of like it or lump it.

It would be a shame for the UK market to lose Tiscali. Although it is perhaps not as exciting and dynamic as some of the other big players, Tiscali has maintained good value, simple consumer offerings, which UK customers have come to appreciate. Over the past couple of years Tiscali has been one of the few players to see continued organic growth of its subscriber base and market share.

It is most likely to be bought by one of the big four players, putting will put 85% of the UK broadband market in the control of just four providers: BT, Virgin, Carphone and Sky.

Michael Philpott, Principal Analyst