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Carphone Warehouse ponders IPTV

Carphone Warehouse has been one of the biggest disruptive forces in the UK broadband market’s history. Its CEO, Charles Dunstone, positioned its fixed communications business, now branded as TalkTalk, around a basic but good value voice and broadband access package.

Moving into pay-TV didn’t really fit into this strategy – or for that matter the Carphone Warehouse and TalkTalk brands – and Dunstone was always skeptical that IPTV could make it in such a competitive pay-TV market. However, with the acquisition of Tiscali’s UK business, Carphone Warehouse has by default acquired an IPTV platform, and Dunstone is now pondering whether to take advantage of that opportunity after all.

Dunstone is correct to reconsider

In acquiring Tiscali, Carphone Warehouse has bought itself a technically good IPTV platform. The platform was originally developed by HomeChoice, which got into IPTV very early, and thus the platform has been refined over a number of years and is known to be a well-developed and innovative solution. If Carphone Warehouse was ever to move into IPTV this would provide an excellent platform from which to do so.

It is also a highly publicised fact that Carphone Warehouse is looking for ways to increase its broadband ARPU as the broadband access market begins to saturate. Looking at its peers around the world it will see that those that are successful in increasing ARPU are largely doing so via pay TV. Indeed, the players with the highest ARPU are those that have maximised their triple-play revenue-generating units per user. With a solution already in place and with such a carrot being dangled, it would be strange for Dunstone not to consider such a move.

Could Carphone Warehouse succeed where HomeChoice and Tiscali could not?

Tiscali acquired its IPTV capability from a small UK broadband operator, HomeChoice. HomeChoice was an early pioneer into IPTV, launching long before many of the more large IPTV players. Restricted by its network footprint, limited funding and a weak brand, the company was never successful in growing its subscriber base beyond a few tens of thousands of subscribers, and the acquisition by Tiscali, with its much larger LLU footprint and customer base, doesn’t seem to have changed that. So is Carphone Warehouse the right company to make this work?

Unfortunately the odds aren’t good. The UK pay-TV market is already very competitive and largely controlled by Sky, the satellite operator, and Virgin Media, the cable operator. BT, the incumbent telco, also has an IPTV solution that has had some success in trying to go for the 50% of households that currently don’t want, can’t afford or can’t get a pay-TV solution from these two large players. Carphone Warehouse therefore has to try and go up against Sky and Virgin (Tiscali’s current positioning), or go against BT for this second, relatively large but lower-value market. Given that its current TV proposition no longer really differentiates against Sky or Virgin, the former seems difficult to say the least, and the latter relatively unattractive.

To go head-to-head with the likes of Sky will need some serious investment. It somehow needs to provide the same levels of content, but cheaper, and more advanced features such as more multi-room HD and VoD capability, which with the UK’s current broadband network will not be easy. It will also need to invest heavily in its brand and marketing budget. To go head-to-head with BT it needs an ultra-slim and cheap solution that can be virtually given away, and then to come up with very innovative ways of actually generating revenues from it. For Carphone Warehouse to succeed it will basically have to develop a strategy that would shake up the UK TV industry as it did with the UK broadband industry, which is a much harder proposition.

The question could be one of value

Carphone Warehouse has also made it public that it intends to spin off its TalkTalk business once the financial markets pick up. The question therefore may be, would a full triple-play company be more valuable at that time or would the investment required to make the TV part successful mean that Carphone Warehouse would be better to sell that part off separately now? A tough decision, and we suspect Dunstone may edge for the latter.

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