Hold the phone: U.K. upstart gives away web

Phone store offers high-speed broadband 'free for life'

LONDON — Has James Murdoch, the new-media-savvy head of Europe’s biggest pay TV outfit, BSkyB, and youngest son of Rupert Murdoch, anything to fear from a man who made a fortune retailing car phones from low-rent stores in unglamorous locations?

Up until April 10 the answer would have been no.

However, the following day European phone store Carphone Warehouse sent pulses racing among London’s media fraternity when it announced an extraordinary sales pitch: high-speed broadband “free for life” to customers who sign up to its new landline package.

Move will trigger a price war between rival U.K. communications combos and make an already jittery TV industry even more nervous as Blighty drives the digital highway toward convergence.

Media commentator Emily Bell, writing in the Guardian, believes this could be a defining moment for the distribution of content in the U.K., equal to 1991, when then-upstart satellite paybox BSkyB outbid terrestrial channels for soccer.

BSkyB used live soccer to persuade reluctant viewers to subscribe — and changed TV for a generation.

Charles Dunstone, who started Carphone Warehouse with $10,000 in 1989 and grew it into 1,300 stores across Europe, has done the same thing, Bell says, “cheekily blindsiding bigger and better resourced organizations.”

“A battle is developing as the people who provide broadband and those that deliver TV start to square up to one another,” says Simon Terrington, who runs London-based consultants Human Capital.

“Four years ago Sky looked impregnable as they successfully converted their analog subscribers to digital,” he adds. “But all of a sudden they are back in a position where they are facing serious competition.”

Carphone Warehouse’s initiative — its monthly allowance of 40 gigabytes for downloads is equal to about 100 one-hour TV episodes — could save customers of rival companies NTL and British Telecom more than $650 a year, according to price comparison Web site Uswitch.com.

And as the digital world continues to emerge, it further blurs the boundaries between old and new media as rival operators in both camps muscle into each other’s space.

The U.K. is the 12th most wired nation, according to a study by the Organization for Economic Cooperation & Development, with 15.9% of Internet users connected to broadband.

The Carphone Warehouse offer should force forecasters like Ofcom, the U.K. communications regulator, to revise their prediction that around half of British homes will be fast-wired by 2010.

Despite recent announcements from Disney, MTV and the BBC offering free content via the Internet, and last week’s launch of interactive games channel ITV Play on broadband and digital platform Freeview, the day when all entertainment services are delivered to homes via one big “fat pipe” remains a distant and technologically fraught prospect.

But most media sages agree that as high-speed broadband becomes the norm, BSkyB, British Telecom, shortly to launch an entertainment service, and the recently merged cabler NTL need to watch their backs.

In fact, the biggest threat to BSkyB’s pay TV dominance is likely to come from cable combo NTL, soon to be rebranded as Virgin following NTL’s purchase of Virgin Mobile for almost $1.7 billion earlier this month.

This is concentrating minds at BSkyB’s west London HQ because it will be the first combined communications company in the U.K. to offer TV and broadband plus fixed and cell phone services.

This so-called “fourplay” — a term coined by Virgin’s publicity-hungry founder Richard Branson — may involve giving away free TV if customers take all three telco offerings — cell phone, fixed-line and broadband.

The aim is to maximize Virgin’s youth appeal and undermine BSkyB, which, according to some observers, loses out in the brand wars because it’s controlled by Murdoch’s News Corp.

Says ex-U.K. Disney topper turned media consultant Paul Robinson: “Sky’s long-term strategy is to move beyond distribution by satellite, as we saw last year when it bought Easynet, the broadband provider.”

James Murdoch may now have no choice but to offer broadband free to Sky subscribers to dissuade customers from taking advantage of the Carphone Warehouse land grab, never mind defecting to Virgin TV or BT.

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