Broadband

Carphone Warehouse has confirmed to SamKnows it is no longer pursuing a purchase of Tiscali, leaving Sky as the sole suitor for the Anglo-Italian ISP that has been for sale throughout most of 2008.

Although Carphone Warehouse believes it will be ‘nip and tuck’ whether it will continue to occupy third place in the UK ISP market, behind BT and Virgin Media, if the purchase goes ahead, it appears likely that Carphone Warehouse’s 2.8m subscribers will be superseded by Sky and Tiscali’s estimated 1.5m and 1.8m customers. Essentially the fourth and fifth largest players in the market will likely combine to become the third force in UK broadband, relegating Carphone Warehouse to fourth spot.
A spokesman for the company reveals that Carphone Warehouse is not unduly worried as it believes all companies have their price but, to his mind, Tiscali’s is too high.
“We put in a bid for Tiscali which was what we thought it was worth but obviously Sky is prepared to pay more so we wish them the best of luck,” he told SamKnows.
“We were always very clear that we would never pay over the odds for Tiscali because we paid £370m for AOL Broadband and, at the time, it had a greater subscriber base than Tiscali. So we would have like to purchase Tiscali, but not at any price.”

Having grown through this major purchase of AOL, Carphone Warehouse has learned to realise that a lot of the cost of acquiring subscribers through purchasing ISPs comes through integrating one or more services. Hence, the eventual cost of incorporating Tiscali’s customers was a major consideration in why the Carphone explains it could not increase its offer.
“We were relatively fortunate with AOL because it was pretty much the same business which we just had to add to ours,” the spokesman explains.
“The difficulty with Tiscali is it has grown through acquisition and when we looked at it, it looked like there would be a risk that we’d be integrating the equivalent of five or six companies in to our own, which was obviously something we had to consider.”

The spokesman went on to confirm that the company will be looking to grow through acquisition but will not be swayed by its current good financial position to pay too much for ISPs. Having received £1.1bn from Best Buy for half of its Carphone Warehouse retail business earlier in the year, the company will not waste the investment by overpaying for broadband growth, the spokesman warns.
“Clearly people are moving house less and so we’re in a switcher market,” he concluded.
“So we can see most growth is going to come about through acquisition and we’re lucky that we’re not in debt, like Virgin Media, and that we actually have money in the bank following the Best Buy investment. So we’re looking out for opportunities but we’re not going to allow companies to take advantage of our good financial position to make us pay more than they’re actually worth. Obviously Sky has done its sums with the Tiscali offer and put a different value on it, so it will be interesting to see how that pans out.”

So, although Carphone Warehouse has stepped aside to allow Sky to talk exclusive to Tiscali, the British company looks set to begin looking out for other acquisition opportunities to add growth in what it is now admitting is a ‘switcher’ market.

Tags: Carphone Warehouse, Sky, Tiscali