Carphone Warehouse to buy Tiscali UK

Carphone Warehouse on Friday agreed to acquire Tiscali’s UK operations for £236 million, expecting to complete by June 2009. This will make the combined business the country’s biggest home broadband provider, with 4.25 million subscribers in total.

Tiscali has been battling debts of around £535 million for some time. The business had previously been in talks with BSkyB, but negotiations broke down earlier this year. For Tiscali UK, this purchase deal marks the end of a long period of uncertainty, during which the prospect of being sold to one of a range of suitors kept appearing and receding.

Commented Cesar Bachelet, senior analyst at Analysys Mason, the global adviser to the telecoms, IT and media industries: “This could be the end of one of the world’s pioneering IPTV services. Back in 2006, Tiscali bought the regional player Homechoice, one of Europe’s first IPTV operators. At the time, Tiscali hoped that the acquisition of Homechoice’s video infrastructure and expertise would enable it to roll out IPTV services throughout the UK, and to launch them in Italy, thus turning it into a major IPTV operator in Western Europe.

“However, the Italian IPTV service was stopped at the end of 2008, within one year of launch, and the UK service never gained much traction in the market. The UK is a tough market for IPTV due to the existence of Freeview, a strong free to air DTT offering, and two well established and successful pay TV operators, the satellite operator BSkyB and the cable operator Virgin Media. Tiscali’s new owner, Carphone Warehouse, targets budget-conscious consumers, being the first operator to launch ‘free’ broadband in the UK in April 2006, so it is unlikely to invest heavily in the type of content that would be needed to have any chance of success through a differentiated IPTV service.”

Carphone Warehouse already provides customers with broadband services through the TalkTalk brand, and addionally owns AOL UK.

For Tiscali as a whole, today’s event marks the end of the pan-European dream. Starting off as a small Sardinian ISP back in 1998, the company rapidly grew into one of Europe’s largest ISPs. In its heyday, the company had operations in 15 European countries, ranging from Scandinavia in the North to Italy in the South, and from France in the West to the Czech Republic in the East, as well as in South Africa. Indeed, in 2003, the company was awarded the title of the fastest-growing technology business in Europe by Deloitte European Technology. However, within one year, the company had embarked on a massive disposal programme in order to enhance profitability, having failed to reach sufficient scale within individual markets.

Bachelet added: “The Tiscali story highlights the fact that the broadband business is a national volume business, and that an ISP gains far greater economies of scale from having a significant market share in one country, than from a multitude of sub-scale operations spread across many countries. Today’s sale is the final blow to Tiscali’s international ambitions, mirroring the fate of earlier empires that eventually collapsed through being overstretched.”

Last month Carphone Warehouse announced intentions to separate its mobile business from TalkTalk.