Vodafone moves into fixed-line broadband

Vodafone has finally confirmed it will be aping its competitors with a definitive move into fixed-line broadband.

The mobile operator on Monday announced it will be reselling DSL from BT Wholesale under its own brand before the end of the year. It declined to release pricing details.

Under the plan Vodafone will be able to sell broadband access across the UK without having to invest in local loop unbundling, where companies install their own gear in BT's exchanges -- a strategy favoured by the likes of Orange Broadband (formerly Wanadoo) and Cable & Wireless.

Given the intense competition in this sector, Vodafone will be under considerable pressure to generate a return on investment. The company has already been selling DSL service to its business customers, but this is the first time it has offered such services in the retail market, where price and download and upload speeds are competitive weapons.

Tim Yates, director of Vodafone's consumer business, told CNET.co.uk's sister site, silicon.com, that Vodafone will not be looking to sign an additional deal with another ISP, so it can match the speeds its competitors can offer. "We're not planning to do that -- we're comfortable with what BT can offer. It's comparable if not better than anything else out there," he said.

In addition to being saddled with offering average speeds, Vodafone will also have to work hard to compete on price. Several ISPs, including Carphone Warehouse and Sky Link, are giving away 'free' broadband to customers signing up for bundled services.

Vodafone's mobile competitors have already got in on the broadband act. Orange is doing its own 'free' offer for mobile subscribers, while O2 recently bought high-speed ISP Be, which sells next-generation ADSL2+ (asymetric digital subscriber line) broadband, capable, in theory, of delivering speeds up to 24Mbps.

Ian Fogg, analyst at JupiterResearch, said Vodafone's broadband manoeuvre was not a simple me-too decision.

"Given the massive price pressure and the free broadband offer, the question [for mobile operators doing broadband] is, where is the return on investment going to come from? There's a significant risk with capital investment in infrastructure. Vodafone [is] minimising the risk by not making that infrastructure investment in broadband in the UK," he said.

Ovum analyst John Delaney concurred that it makes sense for Vodafone not to go it alone.

"The regulatory and commercial conditions in the UK are now more favourable than ever to a company wishing to offer ADSL by wholesaling IP streams over telco-owned lines and so it makes sense for Vodafone to enter the market in this way rather than to invest straight away in a facilities-owning approach," Delaney said in a research note. "Although it would provide more flexibility, it would require both significant capex and a fixed skill set currently not available in-house."

The company's chief executive, Arun Sarin, told journalists in May the operator was categorically uninterested in buying or becoming an ISP in the UK.

Sarin told investors the operator's broadband strategy will be defined country by country. In Germany, one of Vodafone's key markets, the operator has its own fixed-line unit, a result of its acquisition of mobile-phone company Mannesmann.