While thousands wait for service from its struggling TalkTalk broadband service, Carphone Warehouse has snatched 2.1 million new customers by buying AOL UK.
Carphone Warehouse beat off rival BSkyB in agreeing to buy AOL UK for £370 million, getting with it 1.5 million broadband customers and 600,000 on dial-up. The deal consists of £250 million in cash up front, with the balance paid in three further instalments over 18 months.
Carphone will keep the AOL operation separate from TalkTalk, retaining the former’s brand and charging scheme, according to third-party reports.
AOL users might view this as a small mercy. The news came on a day when Carphone published figures showing a £70 million loss - £20 million more than expected - from its attempts to provide "free" broadband to the 625,000 people who signed up for TalkTalk since its April launch. Since then, the company has been beset by large numbers of complaints regarding poor service, with customers reportedly waiting up to two months for a broadband connection.
According to company’s second quarter trading update, of the 625,000 customers signed up for Talk Talk’s broadband service, only 421,000 have so far been connected. Given that only 20,000 of these are fully "unbundled" from incumbent BT at local exchange level, this means that the company has been paying BT rental for 400,000 connections, losing money on each one. Meanwhile, 200,000 customers are still in the queue to get any service at all.
UK regulator Ofcom has in the past slammed the unbundling movement for moving too slowly, with disgruntled customers reporting that TalkTalk's operations n particular are poorly integrated, with staff tasked to wholesale broadband unable to deal with LLU (local loop unbundling) problems, and vice versa.
To date, TalkTalk has only managed to unbundle 370 exchanges, with 470 still being processed from a total of 1,000 it wants to get up and running.
Certainly, the company’s promise to cut costs for ordinary broadband customers has proved a major disappointment, with numerous blogs springing up to condemn TalkTalk for its poor customer service. The company recently and quietly withdrew its all-on-one broadband/calls/line rental offer from some parts of the UK, and now charges a £10 fee for broadband in these areas.
Carphone Warehouse CEO and founder Charles Dunstone remains typically upbeat regarding TalkTalk’s prospects now that it has AOL UK in its fold. "This deal gives us significant scale to complement the rapid organic growth of our free broadband proposition. In addition, the joint development of AOL's already successful audience platform will bring us new advertising and content revenues in a proven and low risk manner," he said.
Given that the company appears to have hugely underestimated the costs and complexity of getting an integrated telecoms and broadband operation off the ground, it remains to be seen whether the AOL acquisition is another miscalculation.