Tiscali on Monday agreed to merge with HomeChoice, a unit of Video Networks that offers digital TV, broadband, and telephone service to the United Kingdom.
Video Networks’ HomeChoice will integrate with Tiscali’s U.K. unit in exchange for an 11.5 percent interest in Tiscali U.K. shares. The agreement is expected to become effective by the end of August. Video Networks could receive up to 20 percent interest if certain performance targets are met.
The merger comes as the U.K. broadband market becomes more competitive, leaving Italy-based telecommunications company Tiscali in a chokehold by digital TV providers of bundled packages and phone companies that offer free Internet.
HomeChoice is facing its own problems, announcing 10 months ago that money would run out within the year. By combining forces, Tiscali and HomeChoice have a chance at keeping a footprint in the market; however, it won’t be easy.
“If all this merger brings in is a handful of customers, I can’t see that as doing very well. It is a very bearish market in the U.K. for DTV,” JupiterResearch analyst Nate Elliott said. “There is so much competition between Sky and Freeview and Telewest.”
Of the 25 million homes in the United Kingdom, HomeChoice has the ability to reach only 10 percent of households. With about 45,000 subscribers as of June, HomeChoice is not the No. 1 choice for digital TV, phone, and Internet in the U.K.
Outflanked?
Tiscali U.K., while ranking in the top five of DSL providers in the U.K., is probably the weakest of those five, said Ian Fogg, a senior analyst from JupiterResearch. Both companies are in danger of being outflanked and left in the dust of larger competitors who have begun offering bundled or free services to their customers.
Sky, a European satellite television company, began offering free broadband access in July to its U.K. customers, packaged with a Netgear wireless router and McAfee antivirus software. Other digital TV service providers such as Freeview and NTL also offer extremely low price points for broadband with their bundled TV and phone services, putting stand-alone broadband companies, like Tiscali, in a bind.
Landline phone provider Carphone Warehouse and mobile phone provider Orange also launched free U.K. broadband services for customers who sign up for their phone services.
But if Tiscali can use its reach within the U.K. to begin offering low-priced packages with HomeChoice, they could expand their product reach across Europe.
“Tiscali has more access to more households than HomeChoice; they could expand and leverage their footprint,” said Mr. Elliott. “Once Tiscali gets its footing [in London’s market], it should be able to expand its services across the U.K. and then to other countries.”
Tiscali expects to be offering digital TV, phone, and Internet by year’s end.
Contact the writer:LSpinelli@RedHerring.com