Vodafone enters UK fixed line broadband market

It came as no surprise when Vodafone announced on Monday that it had signed a Heads of Agreement with BT Wholesale to provide its customers in the UK with Vodafone branded consumer fixed-line broadband services. In a press statement, Vodafone said that it expected to launch its new broadband service before the end of the year. In May, Vodafone had already said it was aiming to get up to 10 percent of its annual revenues over the next three to four years from its new "Mobile Zone" businesses, including converged fixed-mobile Internet services.

In a separate deal two years ago, the two companies reached a partnership agreement to create a Mobile Virtual Network Operator (MVNO) and for Vodafone to become BT's mobile partner in its fixed mobile convergence (FMC) activities. The first product from the deal was the launch of BT Fusion earlier this year, the world's first fixed-mobile phone service. This new agreement now means that Vodafone can now offer a similar fixed-mobile service, thereby directly competing with (and possibly under-cutting) the BT Fusion service from BT Retail.

It's fairly safe to say that Vodafone management has been receiving some fairly mixed press recently. This latest announcement has led to the company being criticised for entering into an already fiercely competitive market with considerable downward pressure on prices and bundled 'free' offers from new entrants. But if Vodafone is to compete in the converged world, it needs to move away from its mobile 'pure play' status.

Perhaps the biggest opportunity that this agreement presents to Vodafone is being able to offer fixed mobile packages to its considerable SME customer base. As an early entrant into the UK mobile market, Vodafone was able to build an enviable UK business customer base. Apart from usually generating higher call revenues per subscriber, business accounts are considerably less likely to churn each year and require a stream of heavily subsidised new handsets to reatin users.

At the higher end, large Corporates (with overseas operations) are already well served by international fixed line operators. Intense competition and over supply has resulted in low or even negative margins on many of the large Corporate accounts. For many SME companies, having a single telco company to deal with would provide considerable time and cost savings. Not to mention savings from a combined fixed mobile pricing plan that takes into account the number of calls made by employees from their mobiles to other employees on either the same site or another company location.

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