Carphone Warehouse to boost broadband business

Mobile-phone retailer Carphone Warehouse is to sell 50 percent of its retail business to US retail giant Best Buy for £1.1bn, and plans to use the cash to grow its broadband business.

Carphone Warehouse, which operates the broadband brand TalkTalk in the UK, will keep a half stake in the retail business, which will see Best Buy-branded stores arriving in Europe, but plans to hold onto all of its UK fixed-line telecoms businesses: AOL Broadband, Opal and TalkTalk.

Carphone Warehouse said it will use the £1.1bn "to pay down debt, invest in broadband customer growth and infrastructure, and invest in new areas of growth presented by the transaction".

Ian Fogg, research director at JupiterResearch, said Carphone Warehouse faces big investment decisions in its broadband business if it is to keep up with the competition as ADSL2+ products hit the market.

Fogg told ZDNet.co.uk sister site silicon.com: "The point they're at with that business is: they need to make decisions about what investment they spend on their broadband infrastructure and where they see the long-term business."

"Carphone [Warehouse] currently is offering an up-to-8Mbps product; they need to take that to the next step if they want to be a serious player in the broadband market," Fogg said.

However, to keep up with other UK broadband players, such as O2 — which Fogg said has recently started heavily marketing its ADSL2+ product — the company will need to upgrade equipment in exchanges and boost line capacity to cope with demand for higher speeds — investments that will not come cheap.

Bandwidth-draining apps such as the BBC iPlayer may also be causing ISPs to scratch their heads over their broadband strategies, Fogg added.

Another potential use for the cash, and a short cut to growing Carphone Warehouse's broadband customer base, could be an acquisition of another UK operator, such as Tiscali.

Fogg said: "Clearly Tiscali appears to be up for grabs, and it may be that Carphone Warehouse decides that, at this stage of the broadband market... the easiest way to acquire customers is to buy Tiscali, and, obviously, that would require an investment in the short term."

He added: "In the longer term, what's going to happen is that, at some point, the UK ISPs will decide to invest in fibre in the UK. That's beginning to be talked [and] it's happening in other countries in Europe, but that will require very large sums of investment — probably beyond the amount of money Carphone Warehouse is raising here."