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Carphone Warehouse to offer free broadband?
Analysts and investors betting on it...

By Reuters

Published: Monday 10 April 2006

Mobile phone retailer Carphone Warehouse could announce the UK's first free broadband offer when it lifts the wraps on its eagerly awaited broadband strategy next week, analysts and investors say.

The independent mobile retailer with a growing suite of telecoms services has become a formidable force in the fixed-line phone market and announced its intention to target the market for high-speed web connections last November.

"We think free broadband is on the way, pioneered by Carphone," Merrill Lynch analysts said in a research note last week.

One investor said the company was likely to announce plans to offer free broadband to homes, which would help it quickly gain a critical mass of customers and mount a serious challenge to market leader BT Group and other rivals.

Existing broadband offers cost around £17.99 a month, with customers paying extra for line rental and for each call.

Analysts said Carphone, which has announced plans to install equipment in some 1,000 telephone exchanges by 2008 to cut its dependence on former monopoly BT, could bundle these services, offering just one bill to customers and potentially sharply cutting their cost.

"We believe that Carphone could break even at exchange level with an ARPU [average revenue per user] of just £12 pounds [a month]. Its shared-access rivals currently enjoy ARPU of £30 to £40," Merrill said.

"The bundling of services with broadband will lead to a further step change in margins," added analysts at SG.

Carphone declined to comment on whether it was planning to offer free broadband. All a senior executive working on the plans said was that the company was working on a "compelling" offering, details of which would be unveiled in a strategy presentation alongside a trading statement on 11 April.

The company, whose shares are up 11 per cent since the start of 2006, has a record of eye-catching offers. Its TalkTalk fixed-line service launched in 2003 offered free calls any time between users and has become the UK's number three fixed-line service, with over 2.5 million customers and an estimated 10 per cent market share.

Analysts saw the company reporting continuing strong growth in its mainstay mobile retailing business, with robust growth in sales of mobile connections. With over 1,700 stores, Carphone accounts for around 7 per cent of handsets sold across Europe.

In January, it reported bumper trading during the Christmas quarter and said it was comfortable with analysts' forecasts for annual pretax profit.