The last two months have seen the emergence of a number of supposedly "free broadband" offers aimed at UK home users. Carphone Warehouse started the trend in May, closely followed by Orange. Sky threw its hat into the ring last week, while ntl:Telewest will join the fun in September.
But trying to work out what effect, if any, this commoditisation will have on e-business and more specifically, business broadband prices, is not straightforward. The first important point to note is (and this really should go without saying): there is no such thing really as "free" broadband. In the case of Sky, the broadband comes tacked on to digital TV; with Orange, it's a mobile contract. There is always a catch.
After Carphone Warehouse got rapped on the knuckles by the advertising regulator for calling its broadband "free", chief executive Charles Dunstone blogged: "We do remain however the only mass market supplier of Free Broadband available without also subscribing to pay TV or a mobile phone subscription."
Of course, getting Carphone Warehouse's "free broadband" relies on having a fixed line and voice package with the company. As Disruptive Analysis's Dean Bubley puts it: "I'm looking forward to Kelloggs bringing out a free broadband offer saying it's the only one where you don't have to get a mobile phone contract, you just have to buy 98,000 boxes of cornflakes."
"It's marketing," points out Ovum analyst John Delaney. "You can only call it free because you allocate the price of it to another part of the bundle — back in the days of the incumbents we used to call that cross-subsidy."
There is a cautionary tale in this, which can be found in Denmark. There, the mobile operator Telmore (known in this country as easyMobile) had great success in offering extremely cheap call and SMS rates after the national regulator mandated cost-level wholesale rates.
Telmore's pricing was so successful that, according to Delaney, it "brought the perceived value of mobile so far down in Denmark that it hasn't recovered".
Delaney thinks the UK could see a similar outcome: "I think the danger is in the long term, if a lot of players are in the game of making things seem free. People are not stupid — the price of the bundle will start to be eroded, and it's very difficult to bring it back up. This risks eroding the value of the components of the bundle."
Ian Fogg, an analyst with Jupiter Research, agrees: "If you market something as free and the market is price sensitive, you're...
Talkback
Broadband is, and almost certainly never will be “free”, the cost is bundled into the charges for other services that have to be taken, often for a long contract and guaranteed minimum spend elsewhere.
With Sky and the others recently, this is the beginning of consumer broadband being an addition to an all inclusive “entertainment package”, bundled with TV, mobile and phone - this is very different to "free".
The future for broadband is very much different between demand and products for businesses and consumers. For consumers, broadband will be a bundled commodity like having a TV or phone line. For businesses, broadband will become a bare minimum for their connectivity, used for simple Internet browsing rather than used to share data, applications and for using VoIP. For these more bandwidth hungry services, businesses are turning to private circuits including leased lines and MPLS.
Conleth McCallan - Datanet