NETWORK: Fibernet highlighted a bespoke optical network agreement with Cable & Wireless that will see it provide connectivity for a C&W broadcast customer in Scotland. NTL?s wholesale division won a ?10m contract to provide networking services to Opal Telecom, Carphone Warehouse?s business telecoms unit. COLT announced a new service that offers Ethernet connectivity ?off-net? in eleven countries across Europe, including the UK. [pp.2?4.]

Telewest is to use NexCor single-core fibre from Corning for network upgrades needed for its on-demand service plans. [p.4.]

AOL announced an investment in LLU and plans to spend ?50m unbundling 300 exchanges across the UK in the first half of 2006. Should this prove successful, a further ?70m could be spent to install further kit in exchanges covering half the UK population. LLU certainly appears to be gaining momentum ? the Office of the Telecoms Adjudicator announced there were more than 250,000 unbundled lines at the end of January with weekly unbundling rates, on occasion, heading north of 15,000. A total of up to three million unbundled lines is now forecast for the end of 2006. [pp.4?6.]

VoIP: There was talk of VoIP hitting the mainstream with the news that Tesco was offering a sub-?20 package containing VoIP software and a USB handset, as part of a new service. While call charges were not considered particularly competitive, Tesco is hoping it will appeal to non-?techies? and it was widely considered that the supermarket?s high street presence could see the venture succeed. Australian company Freshtel is providing the VoIP service to Tesco on a white-label basis. Skype also announced a number of partnership agreements that it hopes will bring its services before a wider audience, while Microsoft announced a handset launch with Philips. Wanadoo predicted that more than half of internet users in the UK will use VoIP services by 2010. [pp.7?9.]

CONSUMER: TalkTalk raised its line rental charges by 50p, to ?10.49, following quickly on from BT?s similar retail price rise. DSG International, the owner of Dixons and Currys, is said to be taking an interest in entering the traditional residential fixed-line market. NTL defended itself from complaints aired on the BBC?s Watchdog. [p.10.]

It was rumoured that NTL could be on the lookout for a new content partner for Flextech, once it completes the merger with Telewest. Ahead of the merger, Malcolm Wall was appointed as Telewest Chief Executive for Content. BSkyB launched a service offering free movie and sport downloads for home computers to its premium subscribers. Downloaded material is available for unlimited viewing for one month before it is automatically wiped. [p.11.]

BUSINESS: Vanco announced deals with existing clients that totalled ?11.5m; C&W won a five-year IP services contract with Standard Chartered; COLT was named sole network supplier for 3i; Affiniti won a converged communication contract with Telford College; Tiscali is to provide a VPN to retailer H&M. [pp.14?15.]

THUS announced a new offering for businesses with remote workers that combines voice, broadband and conferencing services. Telstra launched new web conferencing tools. [pp.16?17.]

As it announced further internal restructuring, C&W also had a re-think on its channel strategy. The telco ended all arrangements with partners selling C&W-branded products on a commission basis. [p.18.]

INDUSTRY: THUS announced a programme of ?transformation? and the acquisitions of United Utilities? Your Communications in a deal initially worth ?58.8m, and Legend Communications for ?11.5m in cash. United Utilities is to take a 21.7% stake in the altnet, in exchange for its telecoms business. The acquisition of Legend, formerly known as Business Serve, will provide THUS with 14,000 additional broadband customers as well as some extra hosting and VoIP business. There was also speculation linking THUS to possible bids for some of C&W?s UK assets. [pp.19?21.]

To fund its acquisitions, THUS placed an additional 67,430,657 ordinary shares, representing 5% of its share capital. THUS is planning to undertake a ten-for-one share consolidation in March in an effort to reduce the volatility of the stock. The company also put Demon Netherlands up for sale as it focuses on the UK. [p.21.]

NTL increased its offer to the minority shareholders of Virgin Mobile. The cableco offered shareholders three options, including a cash offer of 372p per share. A higher cash offer was possible as Virgin Group showed willingness to take a smaller consideration for its interest, as it looks to expand its brand into telecoms and television. Video Networks is thought to be pondering putting itself up for sale. [p.22?23.]

Cable & Wireless announced it was re-structuring its business along UK and international lines. The re-focusing leaves the man apparently behind the reorganisation, Group Chief Executive, Francesco Caio, without a job from the beginning of the next financial year. Richard Lapthorne, C&W Chairman, signed a new three-year deal ahead of the reorganisation. At the same time as the new structure was announced, the market was alarmed by a second profit warning in four months with C&W reporting ?70m in previously undisclosed non-recurring items for the current financial year, meaning that next year?s EBITDA could be just half analyst expectations. The surprise looks likely to cost C&W?s Finance Director his job. [pp.24?27.]

David Thatcher left NTL to become the Managing Director of TalkTalk. [p.27.]

Unbundling ISP Be Un Limited announced it had raised ?24.5m to fund its service rollout following an investment by Novator One. Investment group Novator was also seen building a stake in C&W. PIPEX raised ?14m for future acquisitions through a share issue and was rumoured to be an acquisition target for BT. [pp.21,28.]

Carphone Warehouse reported a 41% increase in revenue for its fixed-line business. Business revenue was up around 24% and TalkTalk UK revenue rose just over 60% for the quarter. PIPEX said 2005 saw revenue increase by 30% and reported gross margins of more than 45%. [p.29?30.]

Ofcom is considering a new body to coordinate the transition to next-generation networks. [p.31.]

EXTRACT

Tesco announced the launch of a new internet telephony offering that will see it provide a VoIP product in its stores across the UK.

Described by the supermarket group as ?the must-have technology of 2006?, the VoIP service requires a PC and broadband connection. The retailer is offering a USB handset, installation software and a ?5 airtime voucher to customers in a starter pack costing ?19.97. The service is described as a hassle-free second line and users can choose a non-geographic phone number for their service.

Calls are charged on a pay-as-you-go basis at 2p per minute for call destinations including the UK, USA and Australia. Calls to UK mobiles are 10p per minute. Calls between users are free. It is claimed that the service offers voice quality ?the same? as traditional fixed-line services (a claim more established PC-based IP telephony companies would perhaps be wary of making).

Andy Dewhurst, Head of Tesco Telecoms, described existing services, such as Skype as appealing to ?one techie person phoning his techie mate in Silicon Valley?.

? The way we communicate is rapidly changing and we believe that this is just the beginning of the internet phone revolution. Our research showed that while many people are aware of internet phone services, most have been put off by complicated technology and confusing tariffs and installation. ?

? Tesco?s simple and convenient new service will finally make this amazing technology accessible to millions of households throughout the UK and allow everyone to benefit from free or very low-cost internet calls. ? ? Andy Dewhurst.

In a research note Morgan Stanley suggested that the threat to incumbent BT from the introduction of Tesco VoIP is based on the prospect of VoIP becoming a mass-market product to be distributed in stores across the country.

Freshtel provides the technology

Australia-based Freshtel Holdings announced the signing of an agreement with retailer Tesco, to provide a white label VoIP telephony service. Under the deal, Freshtel will provide the network, associated infrastructure and billing information, while Tesco will market and distribute the service.

Tesco will pay maintenance fees and Freshtel will earn royalties on all hardware purchased by Tesco from Freshtel?s manufacturing partners. Freshtel will also earn licence fees and margin on all calls to landline or mobile numbers.

In addition, Tesco acquired a 6% stake in Freshtel, for AUD$3.7m (?1.6m). Freshtel said that it will use the funds to ?further develop its products and services for the UK?.

Comment: While the Tesco call charges are not strikingly competitive, the significance of the Tesco entry into the market is widely considered to be its ability to make VoIP mainstream through its trusted retail presence. However, taking a more cynical view, Alternative Commswatch considers that in attempting to lead a charge to widespread VoIP adoption the supermarket faces a number of challenges.

VoIP services requiring a PC to make calls are simply not as convenient as a conventional phone and the Tesco call charges are no more competitive than many CPS service providers for international calls. The quality of calls will also be important and if, as predicted, the Tesco offering becomes many consumers first experience of VoIP, any weakness here could harm more than help the nascent market and lead to IP telephony being treated as little more than a novelty. Tesco could soon discover that the ?techies? are more patient with developing technology than the everyday consumer simply wanting simple, cheap and reliable telephone services that can match those they already have.