Pipex purchase gives Tiscali fighting chance in the UK<br/>

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Tiscali's £210 million acquisition of Pipex's consumer broadband and voice division is likely to bolster the company's trading position whether it chooses to sell up or fight on in the crowded Uk broadband market, according to analysts.

The two companies confirmed the sale, which will add 570,000 subscribers to Tiscali's broadband books, on Friday last week, following months of speculation that Pipex was looking to sell all of part of its business.

Tiscali itself has also been the subject of mutterings suggesting it was mulling over potential sale options for its UK business, suggestions it has thus far refuted.

However, now that the company has acquired a slice of Pipex - at a price that analyst firm Ovum believes is more than the £100 per customer than BT paid for Brightview's customer base earlier this month and more than twice that paid by Carphone Warehouse for AOL's Uk business - it might be able to bump up its asking price should it pursue the sale route in the future.

"Prior to rumours earlier in the year, Tiscali seemed an unlikely outcome, particularly with the operator itself rumoured to be up for sale. However, that said, it makes sense," Ovum analysts Jonathan Coham and Mark Main said in a research note responding to news of the acquisition.

"If Tiscali plans to sell up, an additional 4.2 per cent market share certainly won't hurt its sale price, and combined with an upcoming launch of TV service and other premium content, would make it an attractive proposition for the likes of the fast-growing Sky, the late-to-market O2, or even an ambitious Carphone Warehouse."

If Tiscali chooses to stay and fight for market share in the UK, it will be bolstered by its new stronger position and will boast a 15 per cent share, helping to close the gap on its competitors, according to the analysts.

"If Tiscali chooses to stay, it will face numerous challenges. Most importantly it must build its brand as a consumer company capable of providing not only broadband but the array of additional services that it must sell to remain in business. Unless Tiscali does this, we don't think it will have the brand to compete in the longer term. Today it is predominantly known as a basic service provider - it needs to move quickly towards a more converged, consumer brand if it is to survive" the Ovum analysts added.

Despite being in the commercial interests of both Pipex and Tiscali to do a deal, the acquisition is likely to have wider market impacts that industry stakeholders should be paying close attention to, according to Coham and Main.

"The wider market must also be wary. With over two million subscribers, Tiscali now becomes a much more influential player in the market. Any future sale of Tiscali UK to O2 or Sky for example would radically shift the balance of either," they added.

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