From "EuroTelco morning spam" - Tuesday 21st September, 2004

When we downgraded BT Group to UNDERPERFORM back at the end of July, one of the main areas of concern we cited was a scenario in which the UK retail DSL market comes to resemble France, where unbundling has steadily gained momentum over the course of the past year and where we may well end 2004 with perhaps 22 - 23% of DSL lines unbundled. Last week we heard plans from Cable & Wireless in this area and today we get details of NTL's plans to unbundle 300 exchanges in an attempt to expand its footprint outside areas currently served by its cable network. This is a fairly extensive rollout, and the company has committed a similar level of capex (GBP55 - 65m) to what Cable & Wireless announced last week. This move is entirely expected, and was first inferred from oblique comments by NTL's CEO as early as the fourth quarter of last year. I would expect Telewest to move in the same direction on a selective basis, so as not to go head-to-head with NTL, its likely eventual merger partner.

The interesting aspect of this is that if NTL goes for full unbundling, it will be in a good position to migrate its existing TV offering onto the DSL platform, allowing it to offer a triple play over DSL, similar to what is being targeted by Wanadoo, Tiscali, HomeChoice and others. With Carphone Warehouse and others joining in the unbundling wave, this is clearly bad news. There are also some other wild cards - Energis is a key question mark. Another huge uncertainty, which no one seems to be talking about in this process (yet) is AOL, which is a major player in UK broadband and is reported to be working on a VoIP product. BT's alliance with Yahoo may perhaps heighten BT's importance as a strategic target for AOL in the unbundling arena, which would exert yet more pressure.