Of minnows, big ponds and wonky economics

3 08 2007

More consolidation among U.K. ISPs… Three weeks ago it was Tiscali’s £210 million acquisition of Pipex which turned heads in the City. While at the beginning of July and less likely to register as a big money deal, but noteworthy given who one of the players is, BT bagged small ISP Brightview Group for £15.8 million.

So if the Tiscali / Pipex deal was about extending reach (to 55% of the U.K. population) and unbundling more local exchanges, then what’s the motive behind the BT / Brightview deal? If both were based on subscriber numbers alone, Tiscali values 1.8 million Pipex customers at less than a penny each, while BT thinks Brightview’s 62,000 customers are worth a whopping £254 each.

Arguably, BT has purchased a relatively upmarket subscriber base: Brightview is a white label ISP for retailers Waitrose and John Lewis, alongside its own brands, Madasafish and Global Internet.

Reuters quotes Bridgewell analyst Dan Gardiner, who said the deal highlighted BT’s consolidation strategy within the ISP market of focusing on small, bolt on acquisitions of high quality customer bases rather than mass market players.

Expect lots more of this over the coming months as smaller, independent operators struggle to maintain margins for a product which has been reduced to mere commodity.

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