O2 jumps on the discount broadband bandwagon

Mobile phone operator O2 has announced its plans for a mass-market broadband service, joining rivals such as Orange and Vodafone in offering discounted deals to its phone subscribers to improve customer loyalty and spend levels, while reducing churn.

The announcement of its broadband service, which goes live on 15 October, also thrusts O2 into the highly competitive world of subsidised broadband, currently dominated by Carphone Warehouse's TalkTalk and BSkyB, which offers heavily discounted broadband to its TV subscribers.

The company unveiled three price plans, initially aimed at its contract mobile phone customers. The entry-level service costs £7.50 per month for up for 8Mb, the mid-range service is £10 per month for up to 16Mb, and the high-end price plan costs £15 per month for up to 20Mb. O2's broadband service will be using ADSL 2+, and so the high-end speeds will be heavily dependent on proximity to the exchange and line quality. Broadband customers that are not O2 contract customers can still buy the broadband services, but for an additional £10 on top of the quoted prices.

"The UK broadband market is fuelled by price competition but customers are also frustrated over hidden costs, bad customer service and technical complexity," said Matthew Key, chief executive of O2's UK operation.

To try and differentiate its service, O2 has bundled some additional services such as the ability to send 100 free text messages per month from a computer, along with mobile phone address book and message syncing.

The service will only be available from unbundled exchanges, while the company claims it will have around 50 per cent UK coverage at launch, mostly around major urban areas.

O2, which is now owned by Spanish phone company Telefonica, bought fledgling broadband provider Be for £50 million in June 2006, despite the operator having only 9,000 customers and access to 150 unbundled exchanges at the time. This was in stark contrast to BSkyB's acquisition of Easynet, which was far more advanced in its unbundling effort at the time of acquisition.

The O2 launch comes amid significant consolidation in the low-end broadband market, illustrated by Pipex's decision to sell its mass-market broadband operations to rival Tiscali.

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