BT Strikes Broadband Deal with Vodafone

According to reports in the press this weekend Vodafone will this week announce a strategic deal with BT to offer its mobile phone customers high-speed internet connections in the home.

The tie-up will see Vodafone follow in the footsteps of other mobile groups such as O2 and Orange, which are rapidly reshaping the telecom landscape by outlining plans to offer a package of both fixed-line and mobile products to their customers.

The reports suggest the tie-up with BT is a bitter blow to Cable & Wireless, which had hoped to secure Vodafone’s business as it strives to become a major wholesale supplier of broadband services in the UK.

Under the terms of the BT wholesale agreement, Vodafone will buy the company’s IP Stream product, which will allow it to offer broadband to its customers without the need to own any fixed-line network assets.

Companies such as British Sky Broadcasting, O2 and Orange have all chosen to provide fixed-line broadband by investing heavily in BT’s local exchanges, a process known as local loop unbundling. O2 recently acquired Be Internet, a broadband provider, while BSkyB bought Easynet last year for £211m.

The Vodafone deal with BT is significant because it symbolises the re-marriage or convergence of fixed-line and mobile telecoms services. Over the past decade, the mobile sector has seen exponential growth at the expense of fixed-line incumbents.
However, in the past year mobile groups have returned to the fixed-line arena as they strive to offer a wider range of services to their customers.

Analysts are divided about the value of this new strategic direction, with many fearing that broadband will be an expensive distraction for mobile groups, which should be focused on growing their core services.