Thus snaps up two rivals in £70m spree

The UK broadband market is proving it's still got some consolidation energy left in it, with the news Thus is to acquire two rivals for some £70m and is selling off one arm of its ISP business, Demon.

The two companies now joining the Thus stable are ISP, fixed-line provider and mobile B2B reseller Your Communications, bought for Thus shares equivalent to £58.8m, and northern business ISP Legend, acquired for a cash offer of £11.5m.

The union with Your Communications will bring cost savings of around £25m annually as well as opening up new services, according to Thus.

Legend will be integrated into the UK arm of Demon, which has to date been growing at a much slower rate than the DSL market. The ISP will be repositioned into a small business provider.

Thus will be paring itself down by ditching the Dutch wing of Demon and issuing several million shares. The company will also consolidate its existing shares by a value of 10 to one.

Philip Rogerson, chairman of Thus, said in a statement: "The acquisition of Legend will add further incremental scale and augment Demon UK's existing operations. Taken together, these transactions will transform the Thus Group, creating a larger, more focused participant in the UK telecommunication market."

The reorganisation of Thus marks yet another notch in the broadband market's M&A bedpost, which has seen the merger of NTL and Telewest, Sky's acquisition of Easynet and a number of smaller ISPs, including Metronet and Freedom2Surf, snapped up.

According to Ian Fogg, analyst at JupiterResearch, local loop unbundling (LLU) is often too expensive for smaller players to afford, leaving them struggling to differentiate themselves in a highly competitive market.

He said: "For small ISPs [LLU] is a difficult decision - it doesn't necessarily fit with their business model and revenue stream. The choice is to stay in the market and resell BT Wholesale-based products and potentially offer products that are less competitive on speed and price - it's difficult to differentiate."

Fogg added: "Many small ISPs, when suitors come with their chequebooks, think it's a good time to exit the market... It's not a question of whether consolidation will continue, it's how far it will go."